The short end of the bond market improved yesterday in response to the renewed weakness in stocks, but prices at the long end fell amid reports of selling.

Late in the afternoon, the 30-year bond was off 7/8 point to yield 7.91%, while the two-year note was up 1/8 point and yielded 5.48%.

The selling at the long end started yesterday morning with reports that a Far Eastern account had sold a total of $1 billion of bonds and principal portions of stripped bonds.

"I think the market just labored all day with those bonds," a government coupon trader said.

Joseph Liro, a money market economist at S.G. Warburg & Co., said the selling could have "something to do with level of the dollar, something to do with weakness in Far Eastern equities markets.

"Maybe there was a need to repatriate some funds back to the Far East, and they wanted to do it before the dollar drops any further," Mr. Liro said.

Treasury Market Yeilds

Prev. 38 Prev.

Tuesday Week Month

3-Month Bill 4.64 4.73 5.19

6-Month Bill 4.73 4.87 5.34

1-Year Bill 4.82 4.95 5.42

2-Year Note 5.48 5.62 6.00

3-Year Note 5.82 5.95 6.26

4-Year Note 5.92 6.04 6.41

5-Year Note 6.55 6.62 6.97

7-Year Note 6.96 7.01 7.35

10-Year Note 7.36 7.34 7.66

15-Year Bond 7.72 7.60 7.89

30-Year Bond 7.91 7.78 8.09

The Fed's recent easings and weak U.S. economic statistics have hurt the dollar, which closed yesterday at dollar, which closed yesterday at 129.85 Japanese yen and 1.5980 German marks.

The coupon trader said the long end could still be showing the strain of distributing the supply from the refunding auctions two weeks ago, especially since "there aren't as many players as there used to be" at the long end.

A bond trader agreed that the market for bonds had grown smaller.

"Customers you expect to buy the bond are selling instead," he said. "The only people buying it are Street players."

And in times of uncertainty, investors naturally prefer shorter, more liquid securities, the note trader said. "Accounts want to be very liquid."

Uncertainty continued yesterday as the stock market suffered another big decline following Friday's dramatic 120-point sell off. The Dow Jones Industrial Average closed at 2,931.57, down 41.15 points, after having been off more than 70 points earlier in the day.

Short-term prices spent the day mirroring the stock market's moves, anticipating a flight of money out of the stock market into short-term Treasury paper. Traders said they say buying at the short end, but could not determine if it was money coming out of equities.

Mr. Liro said the front end may also have been encouraged by reports that Washington consultants Johnson Smick International said the White House was considering the possibility of a negative fourthquarter growth rate.

"That is a much weaker economic view than had been generally perceived as the administration's view" and may have encouraged expectations for more Fed easing, he said.

Officially, the White House is more optimistic. Michael Boskin, chairman of the president's Council of Economic Advisers, yesterday was talking about a fourth-quarter gross national product of about 2%.

The poor performance at the long end sent the yield curve back to its steepest point during the refunding auctions. The 30-year's yield spread over the two-year got as high as 243 basis points yesterday.

Traders ignored yesterday's only indicator.

The U.S. merchandise trade deficit increased 4% to $6.8 billion in September from August's downward-revised $6.5 billion.

The increase was higher than the consensus forecast, mostly because of an increase in imports.

Martin Mauro, a senior economist at Merrill Lynch & Co., said the increase in imports is usually interpreted as a signal of strengthening demand and a stronger economy. "But that's clearly not the case, based on what we know abut retail sales," Mr. Mauro said.

In addition, it appears that all of the increased imports are being put on store shelves, Mr Mauro said, because the size of the import said, because the size of the import rise closely matches the recently reported rise in retail inventories.

Today, economists expect a small decline in October housing starts. And this afternoon, the Treasury will announce the sizes of next week's two-year and five-year note auctions.

The December bond future contract close 9/16 at 100 5/32.

In the cash market, the 30-year 8% bond was 27/32 lower, at 100 27/32-100 31/32, to yield 7.91%.

The 7 1/2% 10-year note fell 7/32, to 100 27/32-100 31/32, to yield 7.36%.

The three-year 6% note was up 3/32, at 100 13/32-100 15/32, to yield 5.82%.

Rates on Treasury bills were lower, with the three-month bill off four basis points at 4.54%, the sixmonth bill down five basis points at 4.57%, and the year bill four basis points lower at 4.60%.

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