Fed decision, two-year auction boost bills.

WASHINGTON -- Treasury three- and six-month bills rose for a second straight day yesterday, helped by a strong two-year note auction and the Federal Reserve's decision Tuesday not to tighten monetary policy.

Bonds regained what they lost Tuesday, while most notes slipped a little, Trading again was very light.

The Treasury Department sold $17.3 billion of two-year notes at a yield of 7.57%. The bid-to-cover ratio and the level of non-competitive tenders were both high, showing there was considerable interest in the issue, analysts said.

Late yesterday, yields on three- and six-month bills declined to 5.57% and 6.44%, respectively. One-year bills lost ground however, and notes were little changed.

The yield curve steepened at the short end. Kevin Flanagan, a vice president at Dean Witter Reynolds Inc., said that's the logical response to the Fed sitting tight on rates -- even when the central bank did what the market expected.

Flanagan said it was "perplexing" that the two-year auction gave no noticeable boost to other note prices. "It shows everyone is in a holiday mode," he said.

In late trading, the 30-year bond was quoted up six ticks at 96 1/32, knocking the yield down two basis points to 7.84%. Analysts found this hard to explain, given no real change in market fundamentals.

Treasury Market Yields Previous Previous Wednesday Week Month3-Month Bill 5.54 5.83 5.426-Month Bill 6.40 6.56 5.971-Year Bill 7.01 7.18 6.532-Year Note 7.54 7.57 7.183-Year Note 7.67 7.68 7.405-Year Note 7.74 7.74 7.627-Year Note 7.77 7.79 7.6910-Year Note 7.79 7.79 7.7930-Year Bond 7.84 7.85 7.94

Source: Cantor, Fitzgerald / Telerate

Stats

Stock Market: The Dow Jones Industrial Average rose 34.65 points yesterday, to close at 3801.80.

Foreign Exchange: In late New York trading yesterday, the dollar was quoted at 100.55 Japanese yen and 1.5800 German marks.

Commodities: The Commodity Research Bureau's index closed up 1.45 points yesterday, at 233.94.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER