Most Treasury prices stuck close to Friday's closing levels throughout yesterday's moribund session as the market waited listlessly for the indicators due out at the end of the week.

Traders said the only issue that showed much life was the two-year note, which rose an 1/8 point to yield 5.05%. The two-year outpaced all the other actively traded issues, including the long bond, which was up 3/32 and yielded 7.83% late in the day.

The two-year's disproportionate gains caused the yield spread between the 30-year bonds and two-years to widen to 279 basis points from 274 late Friday.

Traders said two-years probably moved higher because the issue became so expensive to borrow yesterday. The rise in the cost of financing, which suggests there are big short positions in the issue, may have encouraged some participants to buy securities in order to cover their short positions, they said.

"The two-year is very special on repo," said Joseph Liro, an economist at S.G. Warburg & Co. "That may be why it's trading so well. Maybe someone was caught short two-years."

A repo trader said two-year notes traded as low as 0.10% in the repurchase market versus general collateral at about 3.80%.

"There were very large positions, big-time shorts," the trader said.

He added that there were reports of big curve trades involving two-year notes, with some participants establishing short positions in two-years and buying year bills, while others shorted two-years against securities farther out the yield curve, like the five-year note.

Treasury Market Yields

Prev. Prev.

Monday Week Month

3-Month Bill 3.74 3.81 3.70

6-Month Bill 3.91 4.00 3.85

1-Year Bill 4.18 4.30 4.16

2-Year Note 5.05 5.25 5.18

3-Year Note 5.62 5.79 5.80

4-Year Note 6.54 6.65 6.66

5-Year Note 6.54 6.66 6.68

7-Year Note 6.92 7.01 7.03

10-Year Note 7.30 7.36 7.37

15-Year Bond 7.57 7.66 7.63

30-Year Bond 7.83 7.88 7.88

Source: Cantor, Fitzgerald/Telerate

Peter Mayers, assistant treasurer at Bank Julius Baer, said the demand for two-years had spilled over into the neighboring issues, with year bills and three-year notes also outperforming the rest of the market.

Mr. Mayers said, though, that the two-year's performance would not have drawn as much interest as it did had the rest of the market not been so dull.

Traders said the market may remain in a stupor for the next couple of days, until participants get some indicators they can react to.

"The market's stuck in a range until Thursday's inflation and retail sales numbers," a bill trader said.

The May retail sales and producer price reports will be released Thursday morning.

Traders said the market had a firm tone even though activity was so slow.

On Friday, Treasury prices rose when the news of a jump in the May unemployment rate, combined with last Thursday's report of further contraction in money supply, seemed to increase the chances for another Fed easing.

Traders yesterday were skeptical the Fed would cut its funds rate target again, but said they expect Treasury prices to remain near the upper end of the recent trading range in any case.

"We have slowly eroding fundamentals, but an extremely strong technical position," a London trader said. "There don't appear to be any bonds around, and the market trades that way."

"In the short term, one has to really respect the technicals," he continued. "That will be the overriding factor until we get supply."

The September bond futures contract closed 1/32 higher at 99-23/32.

In the cash market, the 30-year 8% bond was 3/32 higher, at 101-24/32-101-28/32, to yield 7.83%.

The 7-1/2% 10-year note was unchanged, at 101-8/32-101-12/32, to yield 7.30%.

The three-year 5-7/8% note was up 3/32, at 101-19/32-101-21/32, to yield 5.62%.

Rates on Treasury bills were mixed, with the three month bill down one basis point at 3.68%, the six-month bill off one basis point at 3.81%, and the year bill steady at 4.02%.

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