Long-term Treasury prices dipped a little yesterday as the Federal Reserve let another day pass without easing monetary policy.

Late in the afternoon, the 30-year bond was 1/8 point lower, where it yielded 8%, while short-term notes and bills were marginally higher.

Prices posted small gains at the start of the New York session yesterday as traders came in with high hopes that the Fed would signal cuts in the discount and funds rates during the morning.

Participants have been waiting for a Fed ease since Friday, when the Labor Department released lackluster August employment statistics. Yesterday morning, traders pointed out that five of the last 10 Fed moves have occurred on Tuesdays, and that the last time the Fed eased was on Tuesday, Aug. 6, following the weak July employment report.

But as morning wore on with no word from the Fed, Treasury securities gave back their small gains.

Even though the Fed held steady yesterday, traders are confident that an ease will be forthcoming within the next few days.

Cleveland Fed President W. Lee Hoskins's remarks yesterday afternoon gave some comfort to those waiting for the Fed to ease.

Mr. Hoskins, who is normally thought of as a hawk, sounded dovish as he commented on the weakness in money supply growth.

He said he is "a little troubled" by the slow growth of M2, which "has been going on a while."

Mr. Hoskins's comments on inflation were mixed. According to various wire services, he said the current rate is too high, and he is optimistic about the prospects for inflation in the future.

"He was kind of friendly," said a bill trader, who expects Fed policymakers to hold policy unchanged until Friday, when they will have seen another set of money supply numbers as well as August retail sales and consumer and producer prices.

Stephen Gallagher, an economist at Kidder, Peabody & Co., said the next chance for the Fed to ease will be sometime early next week, after the inflation reports tomorrow and Friday.

Treasury Market Yields

Prev. Prev.

Tuesday Week Month

3-Month Bill 5.37 5.47 5.44

6-Month Bill 5.46 5.58 5.62

1-Year Bill 5.56 5.68 5.76

2-Year Note 6.18 6.29 6.44

3-Year Note 6.52 6.63 6.81

4-Year Note 6.67 6.76 6.95

5-Year Note 7.18 7.29 7.43

7-Year Note 7.51 7.62 7.73

10-Year Note 7.71 7.78 7.90

20-Year Bond 7.94 7.97 8.14

30-Year Bond 8.00 8.03 8.16

Source: Cantor, Fitzgerald/Telerate

In the meantime, the market is not likely to sell off sharply, Mr. Gallagher said, because "there's just too much hope" for a Fed easing.

"The case is certainly for a Fed ease, adn the market's certainly ratified that by rallying the bond to 8% and the two-year to 6 1/4%," said Joseph Liro, a money market economist at S.G. Warburg & Co.

The December bond futures contract closed 1/8 lower at 97 28/32.

In the cash market, the 30-year 8 1/8% bond was 1/8 lower, at 101 8/32-101 12/32, to yield 8%.

The 7 7/8% 10-year note was unchanged, at 100 31/32-101 3/32, to yield 7.71%.

The three-year 6 7/8% note was up 1/32, at 100 27/32-100 29/32, to yield 6.52%.

Rates on Treasury bills were lower, with the three-month bill down five basis points at 5.24%, the six-month bill off five basis points at 5.25%, and the year bill one basis point lower at 5.28%.

Late yesterday, Morgan Stanley denied rumors that it was under investigation for manipulating the Treasury market.

After an internal review, "we are satisfied that Morgan Stanley has not engaged in any market manipulation, including a 'short squeeze,' or collusive bidding," the firm said in statement.

Morgan Stanley's stock plunged 3 3/8 points yesterday, to 4 1/2, on rumors the firm was under investigation.

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