The Treasury market held its ground yesterday, even though huge quantities of supply are due to hit the short end this week.
Late in the afternoon, the 30-year bond was up 3/32 to yield 8.46%, while short-term notes wer 1/32 to 1/16 lower.
The biggest excitement all day was a half-hour power outage that occurred during the afternoon on the east side of midtown Manhattan.
Activity in the Treasury market was so thin before the loss of power that it did not matter when a few dealers were temporarily forced to the sidelines, traders said.
"It's sort of hard to tell the difference between the pace of a snail and the pace of an ant," said Mathew Alexy, a money market economist at Deutsche Bank Government Securities.
The Treasury is selling $55 billion of short-term paper this week, including $12.5 billion of two-year notes today and $9.25 billion of five-year notes tomorrow, but traders did not seem that worried by the prospect yesterday.
Two-year auctions usually are well-bid, the yield on the when-issued two-years compares favorably with the 5 3/5% funds rate, and hopes for another Fed easing will only make the sale more popular, traders said.
The five-year sale may present a few problems, but should go all right if dealers manage to push the yield a little higher ahead of tomorrow's auction, traders said.
The five-year notes "do represent value compared to longer securities, so I think that auction will go," a short-term note trader said.
Prices began the New York session at slightly lower levels, but inched their way up during the course of the morning.
The market improved because no one was selling and there was some buying of seven-year notes related to a $500 million seven-year Tokyo Electric Eurobond deal, traders said.
"Certainly $500 million in seven-years is enough to temper the market's tone a little to the positive side," a government coupon trader said.
Traders were concerned by the rise in the Commodity Research Bureau index, but that was offset by a decline in oil prices.
The index closed 1.04 points higher, at 209.76, while the September West Texas Intermediate oil futures contract was off 30 cents, at $21.87.
Treasury Market Yields
Monday Week Month
3-Month Bill 5.71 5.73 5.69
6-Month Bill 5.99 5.94 6.00
1-Year Bill 6.24 6.26 6.33
2-Year Note 6.85 6.87 6.88
3-Year Note 7.28 7.29 7.38
4-Year Note 7.43 7.44 7.57
5-Year Note 7.90 7.90 7.95
7-Year Note 8.13 8.13 8.17
10-Year Note 8.27 8.26 8.31
20-Year Bond 8.41 8.43 8.51
30-Year Bond 8.46 8.44 8.50
Source: Cantor, Fitzgerald/Telerate
The market ignored yesterday's only indicator, the federal budget statement for June, which matched economists' expectations.
The Treasury said the government ran a $2.46 billion deficit in June, down from the $11.1 billion shortfall in June 1990 and the $53.35 billion gap reported in May 1991.
For the first nine months of the fiscal year, the total deficit was $177.46 billion, up from $162.59 billion at the same point last year.
Traders said the next important indicator would be the July employment report on Aug. 2.
Until then, "there doesn't seem to be much to push us out of this range either way," a London dealer said.
In the midst of much uncertainty, traders said they would bet on a steeper yield curve.
Long-term rates should move higher as the refunding supply of 10-year notes and 30-year bonds hits the market, and short-term rates should be steady or even move lower if the Fed eases credit again, they said.
The coupon trader said participants are reluctant to put on curve-steepening trades until the two-year and five-year auctions are out of the way.
The September bond future contract closed 3/32 higher at 93 20/32.
In the cash market, the 30-year 8 1/8% bond was 3/32 higher, at 96 6/32-96 10/32, to yield 8.46%.
The 8% 10-year note fell 1/16, to 98 1/32-98 5/32, to yield 8.27%.
The three-year 7% note was down 1/32, at 99 7/32-99 9/32, to yield 7.28%.
In when-issued trading, the two-year note was bid at 6.91% and the five-year note stood at 7.9%.
Rates on Treasury bills were mixed, with the three-month bill one basis point lower at 5.57%, the six-month bill two basis point higher at 5.75%, and the year bill up two basis points at 5.9%.