Expected retail sales figures and a mixed Federal Reserve "beige book" report left the Treasury market trading largely unchanged yesterday as participants waited for tomorrow's more significant industrial production and capacity utilization numbers.

The benchmark 30-year Treasury bond closed up 4/32 yesterday, to yield 7.66%.

Prices across the board at midday were unchanged to a tick or two up or down as market players waited out a lackluster trading session. "What's going on is very little," a trader said. "It's a short story.

The market could have dipped on the retail report, the trader said, but players were still feeling positive after a short-covering rally Tuesday accompanied by a round of retail buying. The observance of Yom Kippur, which began at sundown yesterday, also slowed the market's pace.

The Commerce Department's report that August retail sales were up 0.8% while sales excluding autos rose to 0.7% kicked off the lackluster trading session. Forecasts had called for a 1.0% increase in the overall figure and a non-automotive sales increase of 0.5%.

The market remained equally unmoved with the beige book's report that prices for U.S. finished goods remain insulated from competitive pressures, but raw industrial material costs continue to edge up further.

"If you're surprised by anything in the beige book, you haven't been paying attention for the past four weeks," a market analyst said.

The Fed, which releases the beige book shortly before Federal Open Market Committee meetings, also reported that wage pressures remain "modest," even though worker shortages have been seen in some regions. The FOMC's next meeting is scheduled for Sept. 27.

Coming up today, business inventories for July should see a 0.8% gain, similar to July's wholesale inventory increase of 0.8% and manufacturing inventory increase of 0.9%. Meanwhile, the Philadelphia Federal Reserve Bank's survey of local business for September is expected to show the 12th consecutive month of growth in the region's manufacturing companies.

"I look for a plurality of cyclically bullish indicators today through Friday," said economist David C. Munro in a report for High Frequency Economics.

Friday's industrial production and capacity utilization figures are projected to show growth for the 15th consecutive month. "The industrial production index for August will accelerate on the 30,000 jump in factory jobs and longer workweeks, already reflected in accelerating vehicle deliveries. I look for at least a 0.5% rise in output," Munro said.

Other economists, however, see an increase of only 0.3% for August.

In other news, the Senate Finance Committee recommended on a voice vote yesterday the confirmation of Frank Newman as Treasury deputy SeCretary.

Newman, currently the Treasury's undersecretary for domestic finance, would replace Roger Altman, who resigned after he allegedly misled Congress about his role in the Whitewater scandal.

The 10-year Treasury note was up 4/32 to yield 7.38%. The seven-year note was up 2/32 to yield 7.19%, and the five-year note was up 3/32 to yield 7.00%.

The yield on the three-month bill was down two basis points to 4.67%. The yield on the six-month bill was down three basis points to 5.13%, and the yield on the one-year bill was down two basis points to 5.60%.

Corporate Bonds

"Bond Darwinism," a report from Salomon Brothers' high-yield research team, warns that the straggle for scarce high-yield cash will become more intense over the rest of the year.

Survivors in the straggle, according to the report, will be "cyclicals with industry fundamentals mining strongly," seasoned management teams from companies with proven records of high-yield success, BB-rated bonds that can find insurance company money, and new issuers willing to jump the market by offering high rates or warrants.

Salomon also calculated that $4 billion of high-yield bonds "have a reasonable chance of pricing in September," with $3.8 billion on the high-yield calendar and the remainder in 144A deals.

New high-yield issues priced for August came to $1.08 billion, "which is a seasonally quiet month for the high-yield market," the report said.

Elsewhere yesterday, Fitch Investors Service affirmed its ratings on the debt of Time Warner Inc. and Time Warner Entertainment Co.

The action followed Time Warner Inc.'s announcements of a joint venture with Advanced Publications and Newhouse Broadcasting and acquisition of Summit Communications Group Inc.'s 160,000 cable subscribers in a tax-free merger.

Fitch affirmed Time Warner BBB-minus senior debt, BB-plus subordinated debt, and BB-plus preferred stock. The rating agency also affirmed Time Warner Entertainment's BBB-minus senior debt and F-3 commercial paper.

"The affirmation of the ratings reflects in part that Time Warner will retain a two-thirds ownership interest in the newly created debt-free Time Warner Entertainment-Advanced/Newhouse partnership and will have access to its pro rata share of the cash flow generated by the cable systems within the joint venture," Fitch said in a release. "The affirmation also recognizes that the Summit acquisition will be funded entirely with equity."

Also yesterday, Bear Steams Companies offered $200 million of five-year notes to yield 7.714%, or 70 basis points more than comparable Treasuries, lead manager Bear, Steams & Co. said.

The noncallable notes were priced at 99.635 and bear a 7.625% coupon.

Over all, high-yields remained focused on new issues in thin trading yesterday, and the market was noticeably lighter in investment-grade territory.Treasury Market Yields Previous Previous Wednesday Week Month3-Month Bill 4.68 n.a. 4.456-Month Bill 5.15 n.a. 5.081 -Year Bill 5.65 n.a.2-Year Note 6.35 n.a.3-Year Note 6.64 n.a. 6.585-Year Note 7.06 n.a. 6.957-Year Note 7.25 n,a. 7.1110-Year Note 7.44 n.a. 7.2830-Year Bond 7.71 n.a. 7.49

Source: Cantor, Fitzgerald/Telerate

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