The market maintained its rally through yesterday's session, bringing yields on the long bond to levels not seen since early October.

The 30-year bond finished the New York session up 21/32, to yield 7.33%. Note prices were also higher, while the bill sector was mixed.

The gains came as new economic data suggested retail sales are still depressed and as the Treasury successfully auctioned $15.5 billion in two-year notes.

But market sources warned that the extremely thin pre-holiday trading levels mean the price gains are exaggerated and could reverse themselves once more active trading begins after the Christmas or New Year's Day holidays.

The Johnson Redbook, which is an indicator of the nation's retail sales level, reported yesterday that 1992 sales through Saturday were down 4.3%, compared with a 5% drop reported the week before. The announcement helped market participants add to price gains they accumulated during the morning session.

Earlier in the day, the Commerce Department revised the nation's third-quarter gross domestic product figure sharply lower, to 3.4% from 3.9%. But the market largely ignored the revision.

Department officials said the revision reflects a scaling back of estimates of how much business inventories grew during the quarter. Inventories grew by $7.2 billion, rather than the $12.4 billion previously reported.

Philip Braverman, chief economist and a senior vice president at DKB Securities Corp., said the indicators gave the market a "glimmer" of what he has been warning about for months: that the economy is not on the mend as most economists say, but is rather headed for an "instant replay" of the months following the end of the Persian Gulf war, when an expected recovery failed to materialize despite spiking consumer confidence.

"The market has been handed a bill of goods, and so has the President, the Fed, the President-elect, and 99% of economists," Braverman said.

The DKB economist has been in the minority many times over the past two years with his predictions of a persistent "growth recession," but his gloomy assessments have so far proven accurate.

"Things are a lot worse than they appear on the surface," Braverman said. "We'd be at 7% [yield on the long bond] if people believed what I believe."

He noted that retail sales are still declining, despite many investors accelerating income distributions into 1992 to avoid threatened tax increases next year.

Yesterday's rally was helped by the two-year note auction, which went better than the market had expected. The notes were awarded at 4.71%, with a median bid of 4.68%.

The bid cover for the auction was 2.52 times, and noncompetitive bids totaled $1.045 billion. In late trading yesterday, the notes were quoted at 4.63%.

The expectations of a worse showing put pressure on the note sector early in the day and steepened the curve. But although market sources said they were not sure where all the buyers were coming from, enough support materialized to make the auction a success.

One trader said the strong results prompted some moving out on the curve, as investors unwound earlier trades.

Today, the Treasury is set to auction $11.25 billion in five-year notes. Late yesterday, the five-years were bid at 5.99%.

The March futures contract closed 1/2 point higher, at 105 12/32.

In the cash market yesterday, the 7 5/8% 30-year bond was 21/32 higher, at 103 12/32-103 16/32, to yield 7.33%.

The 6 3/8% 10-year note was up 1/2, at 98 4/32-98 8/32, to yield 6.62%.

The three-year 51/8% note gained 1/4, at 100 4/32-100 6/32, to yield 5.05%.

Rates on Treasury bills were mixed, with the three-month bill up five basis points, at 3.21%, the six-month bill one basis point lower, at 3.31%, and the year bill six basis points lower, at 3.48%.

Treasury Market Yields

Prev. Prev.

Tuesday Week Month

3-Month Bill 3.26 3.27 3.27

6-Month Bill 3.39 3.49 3.50

1-Year Bill 3.60 3.76 3.67

2-Year Note 4.52 4.70 4.62

3-Year Note 5.05 5.21 5.13

5-Year Note 5.96 6.09 6.03

7-Year Note 6.30 6.45 6.42

10-Year Note 6.62 6.79 6.79

30-Year Bond 7.33 7.44 7.53

Source: Contor, Fitzgerald/Telerate

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