Federal Reserve Chairman Alan Greenspan's testimony on monetary policy and the economy provided no new information for the Treasury market yesterday, and prices traded in narrow ranges through a humdrum trading session.
Late yesterday afternoon, the 30-year bond was up 1/32 and yielded 7.65%, and intermediate-term notes were as much as 1/8 point higher.
Traders spent most of the day glued to their television sets watching Mr. Greenspan give the first installment of his Humphrey-Hawkins testimony to the Senate Banking Committee.
But they said Mr. Greenspan's remarks were a disappointment.
"He hasn't really told us anything new," a government note trader complained.
Mr. Greenspan, who was questioned aggressive by the senators, continued to present an upbeat view of the economy. He said he expects the recovery to regain momentum, noting a "solid trend" to lower inflation rates.
The Fed chairman minimized the importance of weak money supply growth and said the increase in velocity, the rate at which money changes hands, may be offsetting the slower growth in the monetary aggregates.
Treasury Market Yields
Prev. Prev.
Tuesday Week Month
3-Month Bill 3.25 3.26 3.74
6-Month Bill 3.34 3.36 3.89
1-Year Bill 3.51 3.53 4.15
2-Year Note 4.26 4.27 4.96
3-Year Note 4.72 4.78 5.47
5-Year Note 5.77 5.87 6.43
7-Year Note 6.35 6.43 6.82
10-Year Note 6.86 6.95 7.22
15-Year Bond 7.22 7.32 7.50
30-Year Bond 7.65 7.67 7.84
Source: Cantor, Fitzgerald/Telerate
The Fed left its targets to money supply growth unchanged, as economists expected with the M2 target set at 2.5% to 6.5% and the M3 target at 1% to 5%.
Michael Strauss, chief economist at Yamaichi International, said there had not been any surprises in Greenspan's remarks "and the market has responded accordingly."
"He continues to present an optimistic scenario on the economy, and an optimistic scenario on inflation," Mr. Strauss said.
"It's been the most lackluster response in the markets I can remember to Humphrey-Hawkins," he added.
Traders said Mr. Greenspan had said little on the topic they were most interested in: his view of the dollar's recent weakness.
On Monday, the Federal Reserve and a number of other central banks bought dollars, and traders interpreted that intervention as a barrier to further Fed easing.
But Carol Stone, a senior economist at Nomura Securities, said there was still a good possibility of another Fed cut in short-term rates if the economic indicators show more weakness.
A coupon trader said the front end of the market was due to weaken a little in advance of next week's two-year and five-year notes sales.
The Treasury will announce the size of the issues today. Economists expect the government to sell $15 billion of two-year notes and $10.5 billion of five-years, matching the sizes at last month's auctions.
Other traders say the demand for short-term paper is so great that the two-year and five-year notes will be absorbed without any difficulty.
Michael Martino, chief investment officer for Back Bay Advisers, a subsidiary of New England Investment Cos., also expects next week's note auctions to go well.
"I think there's still some opportunity for lower interest rates," Mr. Martino said. "I like the three-through seven-year sector very much."
He is less enthusiastic about long-term Treasuries, though, and cited the federal budget deficit and overabundant supply of paper as obstacles to lower long-term rates.
Still, Mr. Martino said, "Because the curve is so steep, I would now be apt to have a very slight allocation of dollars in the 30-year as a hedge against curve flattening and the possibility the Fed may decide the only way to get the economy moving is to bring long rates down."
This afternoon, the Treasury will issue its budget statement for June. On average, economists expect a $2.9 billion surplus, up from the $26 billion deficit last June and the $11.1 billion gap in June 1990.
Traders said the market ignored yesterday's rumor that Iraqi leader Saddam Hussein had been assassinated. The Iraqi embassy in Washington denied the rumor.
After Mr. Greenspan finished testifying yesterday afternoon, prices dipped briefly on the weekly Johnson Redbook report, then bounced off the lows.
The Johnson Redbook depicted stronger than expected buying at department stores. According to the report, sales during the first two weeks of July were up 4.7% from the same period in June and 9.5% higher than the same period last year.
Traders said the market improved on some late-day short-covering, as well as some extension trades.
"People are beginning to believe this rally is the real thing, so portfolios are extending out the curve," a bond salesman said.
The September bond futures contract closed unchanged at 102 13/32.
In the cash market, the 30-year 8% bond was 1/32 higher, at 103 28/32-104, to yield 7.65%.
The 7 1/2 10-year note rose 5/32, to 104 10/32-104 14/32, to yield 6.86%.
The three-year 5 7/8% note was up 1/32, at 102 30/32-103, to yield 4.72%.
Rates on Treasury bills were higher, with the three-month bill up four basis points at 3.20%, the six-month bill up two basis points at 3.26%, and the year bill four basis points higher at 3.40%.
Treasury Market Yields
Prev. Prev.
Tuesday Week Month
3-Month Bill 3.25 3.26 3.74
6-Month Bill 3.34 3.36 3.89
1-Year Bill 3.51 3.53 4.15
2-Year Note 4.26 4.27 4.96
3-Year Note 4.72 4.78 5.47
5-Year Note 5.77 5.87 6.43
7-Year Note 6.35 6.43 6.82
10-Year Note 6.86 6.95 7.22
15-Year Bond 7.22 7.32 7.50
30-Year Bond 7.65 7.67 7.84
Source: Cantor, Fitzgerald/Telerate
