As economy serves up strength, investors push away from table.

Strong news on the economy gave the Treasury market a case of indigestion yesterday, and investors sold securities across the yield spectrum.

The 30-year bond ended down almost a point, to yield 6.29%.

Consumer confidence surged in November, as did manufacturing activity in the Chicago region of the country.

The news, which sent bond prices spiraling lower, was too much for some investors to stomach, particularly against the backdrop of widespread expectations for news of stronger economic activity later in the week.

Some positive developments late in the day enabled the market to recover some losses, including a coupon pass by the Federal Reserve and further decline, in oil prices. But aside from the market's late-day attempt to recoup declines, selling Treasuries was the trade of choice.

"Better economic numbers and the expectation that the statistics will continue to come in strong are pushing the market lower," said Dana Johnson, head financial market analyst at First Chicago Capital Markets Inc.

The Conference Board said its closely watched consumer confidence index surged to 71.2 from a revised 60.5 in October. Last month's performance was originally reported at 59.4. The board noted that an improvement of this magnitude has rarely occurred in the 25-year history of its survey, and bond investors took notice with a midmorning selling spree.

Another negative development for the market was a surge in the Chicago Association of Purchasing Managers' index. The closely monitored reading of manufacturing activity surged to 65.3% in November from 57.0%, much stronger than expected. The strength in the index was broad-based with sizable pins in production, new orders, orders backlog, and inventories. The employment component rose to 55.6% from 51.9%, its highest level since January.

"Consumers are buying these days and helping many sectors of the economy improve, including manufacturing," said Richard Peterson, chief economist at Continental Bank.

Peterson noted that the fundamentals continue to paint an optimistic picture of overall economic growth. Pervasive signs of growth have put fixed-income investors on the defensive in recent weeks and placed increased emphasis on economic reports -- even reports that historically have held little significance for Treasuries. While the market has already built in expectations for strong growth in the fourth quarter of 1993, observers say Treasuries remain extremely vulnerable to further hints of strength.

That sentiment was evidenced by the market's negative reaction to a Washington Post story yesterday quoting a top Clinton Administration official as saying that next year the unemployment rate could move below 6% and that the strength of the economy may threaten an increase in inflation and higher interest rates.

Observers agreed that the reported remarks by Laura D'Andrea Tyson, chairman of the President's Council of Economic Advisers, didn't provide participants with fresh insight on the economy, but they said the market's tenuous state left it vulnerable to any bad news.

"The fear is that faster growth in the economy will lead to inflation," Peterson said. "Some bond investors don't want to take that chance, so they're selling now."

Inflation has yet to pose a significant threat, but observers believe the potential is there. The great debt market rally of 1993 was predicated on the belief that the overall inflation rate was moving lower. But in recent weeks, upward pressures in some inflation indicators have dealt a sobering blow to the bond market and supported the notion that inflation remains low, but not dead.

Keeping the market from caving in yesterday was the downward trend in energy prices. Lower oil prices stem from the Organization of Petroleum Exporting Countries' failure to cut production and Iraq's apparent progress in convincing the United Nations to lift the post-gulf War sales embargo.

Lower oil prices, coupled with a more than two-point drop in the Commodity Research Bureau's index of 21 commodity prices, helped push Treasury prices moderately higher through the afternoon.

A permanent addition of reserves was another supporting factor in the market's late-day recovery attempt. The Fed announced it was buying coupons dated June 1994 and out, a move that gave Treasuries a lift across the board. Speculation that the central bank bought a hefty amount of long-dated paper in the transaction provided the long end of the market with some much needed sponsorship.Treasury Market Yields Prev. Prev. Tuesday Week Month3-Month Bill 3.15 3.12 3.116-Month Bill 3.30 3.27 3.251-Year Bill 3.49 3.46 3.382-Year Note 4.21 4.18 4.073-Year Note 4.53 4.51 4.345-Year Note 5.15 5.11 4.987-Year Note 5.37 5.33 5.1910-Year Note 5.81 5.78 5.6130-Year Bond 6.29 6.29 6.13

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