Treasury prices bounced back sharply yesterday after three days of declines, with the 30-year bond gaining 3/4 point to yield 7.41%.
Traders said the gains reflected the market's relief at getting through this week's auctions of two- and five-year notes.
The relatively calm trading in the foreign exchange markets also helped, allowing traders to focus instead on the United States' sagging economy.
The Treasury market sold off during the first three days of the week as it came under pressure from the note sales, the fluctuations in the currency markets, and Argentina's announcement that it would not buy Treasury securities in the secondary market for its debt reduction deal.
Those losses left the market "Just horribly oversold," the head of a government trading desk said.
He compared this week's losses to the declines that occurred during August's two- and five-year sales. "We tend to find these downdrafts around periods of supply, and this was just another case of that."
The market began to do better overnight in Tokyo. Frederick Leiner, a market strategist at Continental Illinois National Bank, said those gains could be linked to the dollar's improvement against the yen.
"There were some reports of Japanese selling [earlier this week], so when the yen began to underperform the dollar, I think that helped Treasuries out a little bit." Mr. Leiner said.
Elias Bikhazi, an economist at Deutsche Bank Government Securities, said prices had fallen enough to effect buying.
"One of the main pluses for the market is that some people find these levels attractive," Mr. Bikhazi said.
"The other plus is that the auctions are over, and the supply situation will clear for the next few days. "
Treasury prices showed little response to yesterday's indicators, which came in close to economists' forecasts.
The Labor Department said new claims for unemployment benefits rose 15,000 to 414,000 in the week ended Sept. 12, from the revised 399,000 total the week before.
Filings for federal benefits rose 2,292, to 17,612 in the same week, while the total number receiving state benefits increased 11,000, to 3.164 million in the week ended Sept. 5.
Mr. Bikhazi said it was difficult to interpret how much of an impact Hurricane Andrew and the lingering effects of the General Motors strike had on the claims data, but he said the claims numbers suggested the labor market was unchanged or slightly weaker.
The bond market was even less interested in the minuscule shift that occurred in the government's revision to second-quarter gross domestic product. Second-quarter GDP now shows a 1.5% gain instead of the 1.4% increase reported last month
Late yesterday, a spokesman for the Federal Reserve Bank of New York reported that the nation's M 1 money supply rose $2.8 billion, to $986.3 billion in the week ended Sept. 14; the broader M2 aggregate increased $2.1 billion, to $3.5 trillion; and M3 jumped $11.1 billion, to $4.2 trillion, in the same period.
The December bond futures contract closed 26/32 higher at 104 20/32.
In the cash market, the 7 1/4% 30-year bond was 23/32 higher, at 97 29/32-98 1/32, to yield 7.41 %.
The 6 3/8% 10-year note rose 19/32, to 99 9/32-99 13/32, to yield 6.45%.
The three-year 4 5/8% note was up 9/32, at 100 21/32-100 23/32, to yield 4.35%.
Both the note issues sold this week were trading at a profit. In when-issued trading, the 4% two-year note was 5/32 higher, at 100 6/32-100 7/32, to yield 3.88%, down from the 4% stopout rate at Tuesday's auction, and the 5 1/2% five-year note was up 11/32. at 100 5/32-100 7/32, to yield 5.44%. which compares to the 5.54% stopout rate at Wednesday's sale.
Rates on Treasury bills were lower, with the three-month bill off four basis points at 2.89%, the six-month bill down five basis points at 2.93% and the year bill off five basis points at 3.05%.
In other news, the New York Fed reported the federal funds rate averaged 3.07% for the week ended Wednesday, down from 3.28% the previous week.
Treasury Market Yields
Thursday Week Month
3-Month Bill 2.93 2.93 3.20
6-Month Bill 2.99 2.99 3.30
1-year Bill 3.14 3.11 3.44
2-Year Note 3.88 3.81 4.18
3-Year Note 4.35 4.32 4.68
5-Year Note 5.44 5.37 5.60
7-Year Note 5.99 5.90 6.13
10-Year Note 6.45 6.38 6.60
30-Year Bond 7.41 7.32 7.39
Source: Cantor, Fitzgerald/Telerate