With the presidential election over, Treasury traders are beginning to focus on how much consumers will be spending this holiday season, traditionally the most important time of the year for U.S. retailers.
There has been speculation in the bond market this week that Gov. Bill Clinton's election will bolster consumer sentiment and lead to a surge in Christmas spending.
Maureen O'Toole, director of research at Rodman & Renshaw Inc., said there is a talk that consumers will enter a "honeymoon phase of optimism, thinking the new administration will create a better economic environment."
She said retailers were doing their best to encourage buying, with credit card rates the lowest they've been in years and some stores offering customers a grace period of a month or so before they have to begin playing their Christmas bills.
There were signs during the third quarter that consumers were becoming more willing to dig into their wallets. The gross domestic product report shows spending rose at a 3.4% rate during the quarter, after falling 0.1% during the second quarter.
Car and truck sales have also picked up recently, and last Friday, the Federal Reserve reported that outstanding consumer credit grew $1.6 billion in September, the first increase since January.
But economists said that while spending may grow modestly, it is not likely to surge until consumers see further job growth and wage gains.
Kathryn Kobe, a vice president at Joel Popkin & Co., an economic consulting firm, said she doubted consumers would be able to improve much on their third-quarter performance.
"I think people think there has been a change, but I don't expect a fabulous consumer spending number," she said. "People just don't have the money, and there hasn't been a big boom in employment."
Fabian Linden, executive director of the Conference Board's consumer research center, said there is no evidence that election results have a direct effect on consumer spending plans.
"The consumer respond to his or her personal well-being or lack of well-being," Linden said. "The fact we have a new man in the White House doesn't automatically mean we're going to have dancing in the street."
"Remember, too, that more people did not vote for Clinton than the number that did vote for Clinton."
Linden said that "in a similar election in a recession period, when Mr. Reagan unseated Mr. Carter, there was no improvement in sentiment."
The market will get news on spending and confidence tomorrow. Economists expect only a modest gain in the October retail sales statistics. The consensus forecast calls for a 0.7% rise in sales and a 0.4% increase if auto sales are excluded. Some analysts also expect an upward revision to September's 0.3% increase in sales.
Also tomorrow, the University of Michigan will release its preliminary look at November consumer sentiment to its subscribers.
Treasury note and bond prices rose slightly in quiet overseas trading, with the 30-year bond up 1/8 point to yield 7.65%.
The U.S. cash Treasury market was closed for Veterans Day and the futures market in Chicago was opened for a abbreviated session.
A London dealer said Treasury trading there was "dead as a dodo," and warned against reading too much into yesterday's price action, given that volume had been so low. "There have probably been a few hundred [million dollars worth of trades] gone through the screens," he said.
Another trader said the fact that the market held onto Tuesday's price increases was encouraging. "There's no sign of profit-taking in London," he said.
The long bond posted a 3/4-point gain Tuesday as the market rallied on the favorable October producer price report and the successful 10-year note sale.
The rally left both the new 10-year notes and the three-year notes sold Monday at a profit, but participants are still wary of today's sale of $10.25 billion of 30-year bonds.
London traders said an article in yesterday's Washington Post saying Federal Reserve policymakers were comfortable with the prospect of a fiscal stimulus program did not have any impact on prices.
According to the article, Fred officials are worried about the weak economy and think the low inflation rate gives Clinton some room to spend money on programs to stimulate economic growth.
The article quotes Richard Syron, president of the Boston Fed, and Jerry Jordan, chairman of the Cleveland Fed, and claims their views are "representative."
The weekly jobless claims report, today's only economic news, is expected to show an increase of 7,000 to 367,000 for the week ended Oct. 31.
The money supply statistics, which usually come out on Thursdays, were delayed by the Veterans Day holiday and will be released tomorrow.
The December bond futures contract closed 1/4 higher at 102 23/32.
In the cash market, the 7 1/4% 30-year bond was 3/32 higher, at 95 4/32-95 8/32, to yield 7.65%, and the when-issued 30-year bond to be sold today was bid at 7.64%.
In when-issued trading, the 6 3/8% 10-year note rose 3/32, to 96 18/32-96 22/32, to yield 6.84%.
The when-issued three-year 5 1/8% note was up 3/32, at 100 4/32-100 6/32, to yield 5.05%.
Treasury Market Yields
Wednesday Week Month
3-Month Bill N.A. 3.05 2.98
6-Month Bill N.A. 3.29 3.08
1-Year Bill N.A. 3.50 3.23
2-Year Note 4.43 4.41 3.99
3-Year Note 5.05 4.86 4.45
5-Year Note 5.94 5.93 5.49
7-Year Note 6.42 6.43 6.06
10-Year Note 6.84 6.86 6.49
30-Year Bond 7.65 7.67 7.49
Source: Cantor, Fitzgerald/Telerate