Treasury prices lost ground yesterday as the market gave back some of the gains made Friday in response to the stock market's plunge.
Late yesterday, the 30-year bond finished with a 1/2-bond loss and yielded 7.84%, and short-term notes were slightly lower.
Treasuries had improved Friday partly because deterioration hoped that continuing deterioration in the stock market would encourage investors to move their money from stocks into Treasury securities.
Instead, the stock market managed a small bounce yesterday. The Dow Jones Industrial Average closed near its highs of the day at 2,972.72, a gain of 29.52 points. That represents a reversal of about a quarter of Friday's 120-point loss.
Treasury Market Yields
Monday Week Month
3-Month Bill 4.69 NA 5.18
6-Month Bill 4.79 NA 5.31
1-Year Bill 4.86 NA 5.42
2-Year Note 5.51 5.64 5.96
3-Year Note 5.86 5.95 6.23
4-Year Note 5.96 6.04 6.39
5-Year Note 6.55 6.64 6.95
7-Year Note 6.95 7.03 7.31
10-Year Note 7.33 7.40 7.62
15-Year Note 7.67 7.69 7.89
30-Year Note 7.84 7.86 8.07
Source: Cantor, Fitzgerald/Telerate
As the stock market improved, Treasury securities moved lower, with most of the movement occurring early in the session.
"It's been really quite," a government note trader said. "The focus is the stock market and it seems to have settled down."
Peter Mayers, assistant treasurer at Bank Julius Baer, said the market had little else to focus on. "The entire Treasury market watched stocks because there was nothing else to watch -- no data, no international news," he said.
Traders said yesterday's rise in stock prices calmed fears that Friday's sell-off might presage another stock market crash. But Anthony Karydakis, senior financial economist at First Chicago, said it was too early to conclude the stock market had stabilized.
"I think people will be on the watch for another day or two for any unusual price action in the stock market," Mr. Karydakis said. "But the fact that it managed to push higher is definitely encouraging."
Another factor boosting short-term Treasury prices Friday was a Senate proposal to limit interest rates on credit cards.
The measure now seems unlikely to become law in its current form. Administration officials attacked it over the weekend and yesterday morning the White House said the President would veto such a bill.
But Treasury traders were not convinced the issue was dead.
"Whether it's mandated by Congress or not, public pressure will force banks to lower rates," a Treasury coupon trader said.
Traders think lower rates could damage the economy as banks' balance sheets suffer and consumer spending power is reduced when banks take back cards from risky borrowers.
The note trader said the bullish fundamentals will underpin the market, especially at the short end.
"The economy is weak, the Fed's going to ease again," the trader said.
There is supply coming at the short end; the Treasury will announce the details of next week's two-year and five-year auctions tomorrow afternoon. But the trader said if the supply causes a small setback. "It's an opportunity to buy."
Today's big excitement was supposed to be Federal Reserve Board Chairman Alan Greenspan's reconfirmation hearing. But the Senate Banking Committee decided to concentrate on banking reform instead, and said it would postpone the chairman's testimony until that legislation is out of the way.
Absent his testimony, the only news today will be the September merchandise trade balance, which traders said is unlikely to move the market.
Economists surveyed by The Bond Buyer expect the September deficit to improve to $6.4 billion from the $6.8 billion August gap. That reverses a small part of the deterioration seen during the previous two months.
Yesterday's bill auction came right in line with expectations, with the $10.2 billion of three-months sold at an average rate of 4.58% and the $10.2 billion of six-months auctioned at an average rate of 4.62%.
The December bond future contract closed 5/32 higher at 100 23/32.
In the cash market, the 30-year 8% bond was 15/32 lower, at 101 22/32-101 16/32, to yield 7.84%.
The 7 1/2% 10-year note fell 9/32, to 101 2\32-101 6/32, to yield 7.33%.
The three-year 6% note was down 1/32, at 100 10/32-100 12/32, to yield 5.86%.
Rates on Treasury bills were higher, with the three-month bill up two basis points at 4.59%, the six-month bill up three basis points at 4.63%, and the year bill three basis points higher at 4.64%.