Federal Reserve Chairman Alan Greenspan's testimony on the economy failed to inspire the Treasury market yesterday and prices closed little changed, with the 30-year bond steady and yielding 8.44%.
Mr. Greenspan offered his usual mix of optimism and caution in his semiannual Humphrey-Hawkins testimony on Capitol Hill, and traders said his remarks indicated little more than what they already knew: that Fed monetary policy is on hold.
Mr. Greenspan told the House Banking Committee that economic data suggest the recession is over, an expansion has begun, and interest rates will continue to improve.
He tempered those upbeat comments with warnings that the recovery still might falter and that credit availability remains a problem.
Stephanie Murphy, an economist at Manufacturers Hanover Securities Corp., said Mr. Greenspan seemed to emphasize the upbeat parts of his message.
"He's certainly being optimistic about the prospects for the economy," Ms. Murphy said. "He's also emphasizing Fed forecasts that inflation is turning down and that core inflation will be lower by this time next year."
The Fed said it expects consumer prices to rise from 3 1/4% to 3 3/4% this year and between 3% and 4% in 1992.
Ms. Murphy said it was also interesting that Mr. Greenspan seemed to see more risk of a faltering recovery than of runaway inflation.
Still, his testimony "just confirms what the market already knows, that the Fed is on hold as far as the eye can see unless the indicators take a turn for the worse, or less likely, if they show the expansion is getting overly robust," she said.
Anthony Karydakis, a senior financial economist at First Chicago, said Mr. Greenspan's comment that the Fed must remain alert for signs that the recovery is running into problems shows "that they have not completely rejected the possibility they may have to do more easing somewhere down the road."
He added that the Fed's projection of a 2 1/4% to 3% growth rate next year is "very realistic." The administration is projecting a 3.6% growth rate for 1992.
Prices fluctuated in a narrow range as the Fed chairman spoke, and headed toward the bottom of the day's range when he concluded his testimony.
A government note trader said the pressure on prices showed some traders with long positions were disappointed with Mr. Greenspan's remarks.
"The comments didn't really warrant a move in the market, but to the extent that people were long hoping for bullish comments, you have them selling it," the trader said.
Activity was quiet for the remainder of the day and traders said the market had shifted back to worrying about supply and waiting for today's numbers.
The market has had a good tone in recent days, as some mixed economic
Treasury Market Yields
Prev. Prev.
Tuesday Week Month
3-Month Bill 5.74 5.74 5.77
6-Month Bill 5.97 5.94 6.05
1-Year Bill 6.27 6.27 6.36
2-Year Note 6.85 6.94 6.95
3-Year Note 7.25 7.39 7.39
4-Year Note 7.43 7.58 7.58
5-Year Note 7.88 7.99 7.94
7-Year Note 8.11 8.23 8.18
10-Year Note 8.25 8.35 8.31
20-Year Bond 8.44 8.52 8.51
30-Year Bond 8.44 8.52 8.51
Source: Cantor, Fitzgerald/Telerate
indicators fed expectations of a modest recovery. But analysts questioned whether prices can move much higher.
"I think they're going to try to test the 94 level" on the September futures contract, said Karen Gibbs, a senior futures analyst at Dean Witter Reynolds Inc. The September contract closed at 93.23 yesterday.
But Ms. Gibbs said the approaching auctions as well as strong resistance around the 8 3/8% yield level on the bond probably will cap any further price improvement.
"Right now, I'm seeing mostly yield curve plays," she added, with traders betting on further steepening in the curve.
The upcoming supply includes next week's two-year and five-year note auctions and what are expected to be record refunding auctions of three- and 10-year notes and 30-year bonds in early August. The Treasury will announce the size of the two-year and five-year notes this afternoon.
Mr. Karydakis said the "overwhelming concerns" about supply would limit the market's upside potential.
"People know you have two auctions to get done next week and you may need some price concessions," he said. "There is a feeling that over the next few days, the name of the game will be making room for the auctions."
Also today, the market will get June consumer prices and housing starts.
Analysts surveyed by The Bond Buyer expect a 0.2% gain in last month's consumer prices, with the core rate up 0.3%, and a 2% rise in June housing starts to a 1 million annual rate.
The September bond future contract closed 3/32 lower at 93 23/32.
In the cash market, the 30-year 8 1/8% bond was unchanged, at 96 11/32-96 15/32, to yield 8.44%.
The 8% 10-year note rose 1/32, to 98 5/32-98 9/32, to yield 8.25%.
The three-year 7% note was up 3/32, at 99 9/32-99 11/32, to yield 7.25%.
Rates on Treasury bills were higher, with the three-month bill up three basis points at 5.59%, the six-month bill up three basis points at 5.73%, and the year bill one basis point higher at 5.92%.
