The Treasury market ended in positive territory yesterday as weak news on the economy and signs of lower prices allayed fears in an extremely nervous trading environment.

The 30-year bond ended up 8/32, to yield 5.97%.

After four sessions of declines, market-friendly statistics emerged to give Treasuries a boost across the board.

The news on consumer confidence, employment costs, and commodity prices acted as a tourniquet, stopping the flow of money out of Treasuries that has caused many players to see red in recent sessions.

Participants viewed yesterday's price action as a rest from the market's recent corrective trend, remarking that prices failed to rebound substantially and that market psychology remains somewhat negative. They also said most of the gains reflected short covering rather than fresh buying.

The bounce in prices got under way in overseas trading as foreign accounts bought Treasuries to take advantage of attractive yield levels brought on by the recent sell-off. But a lack of follow-through buying at the start of North American trading caused prices to edge lower again.

Treasury Market Yields prov. Prev. Tuesday Week Month3-Month Bill 3.09 3.06 2.966-Month Bill 3.19 3.14 3.191-Year Bill 3.31 3.27 3.312-Year Note 3.89 3.82 3.893-Year Note 4.17 4.06 4.175-Year Note 4.74 4.63 4.747-Year Note 4.94 4.80 4.9410-Year Note 5.38 5.24 5.3830-Year Bond 5.97 5.83 5.97

source: Cantor, Fitzgerald/Telerate

The market changed direction when the players received word that consumer confidence waned this month. The Conference Board's index of consumer confidence slipped back to 59.4 in October from a revised 63.8 in September.

The board's expectations index also fell, to 65.4 in October from 72.8 in the previous month, while the present situation index held steady at 50.2. The market had anticipated another increase in the overall index, and when it came in weaker than expected, players covered short positions.

The market was also cheered by a favorable reading on the employment cost index. The Labor Department reported that workers' compensation costs rose 0.8% in the third quarter and that the overall employment cost index rose 3.6% compared with the same period last year. Both figures were slightly better than market expectations and helped ease fears that wages were growing along with some sectors of the economy.

Also on the price front, the Commodity Research Bureau's index of commodities prices fell steadily throughout the session, led by declines in lumber and gold prices. The index ended down 94 cents at, $217.70 and the Journal of Commerce Index closed down two cents to $94.60.

The Johnson Redbook survey of weekly retail sales was another supporting factor yesterday. The survey found that sales in the week ended Saturday rose 0.8%, compared with the same week in September, when sales posted a hefty 1.3% gain.

"The reports suggested that there are some areas of the economy that are not gaining strength and they helped the market stabilize," said Steven Wood, director of financial markets research at Bank of America.

Wood downplayed the importance of the consumer confidence survey, asserting that there is often little correlation between consumer sentiment and spending. For example, Wood said the confidence figures were not consistent with recent sharp increases in auto and housing sales.

Market observers agreed that a sustained upward trend in the monthly confidence figures would suggest a pickup in spending. However, they said that it will take a few more months of strong reports to make that conclusion.

The jury is still out on whether the economy is on the rebound and if Treasury yields have bottomed out; trading activity in recent session has underscored the tenuous state of the market. While few participants are willing to announce the end of one of the most impressive bond market rallies of the century, most agree that further signs of vibrance in the economy will pose problems for holders of fixed-income securities.

The Treasury long bond continued to hover around the 6% yield, a level that many have pegged as a barometer of the market's health. The prevailing view among market participants is that a yield below 6% supports the slow growth, low-inflation scenario that has supported Treasuries this year. On the other hand, a yield significantly above 6% would lend credence to the view that economic and inflationary growth are on the rebound, they said.

"The debate is on between people who say the rally is over and those who say it is still on," said Gilbert Clark, a trader at Daiwa Securities. "People in the market are listening to both sides of the argument and until they reach a decision, the market won't break the lows, nor do I think we'll get much of a backup."

The Treasury's auction of two-year notes yesterday came and went with little ado. A 3.875% coupon was set on $16.5 billion of two-year notes that the Treasury sold at a 3.94% yield, or a price of 99.876. The auction was part of the Treasury's yearlong single-price auction experiment of two- and five-year notes that began in September 1992.

Traders said demand for the auction was reasonably good, considering that the volume was increased by $500 million.

In futures, the September contract ended up 8/32 to 118.27.

In the cash markets, the 3 7/8% two-year note was quoted late yesterday up 1/32 at 99.30-99.31 to yield 3.89%, the 4 3/4% five-year note ended up 3/32 at 99.30-100.00 to yield 4.74%, the 5 3/4% 10-year note was up 5/32 at 102.19-102.23 to yield 5.49%, and the 6 1/4% 30-year bond was up 8/32 at 103.20-103.24 to yield 5.97%.

The three-month Treasury bill was up one basis point at 3.09%, the six-month bill was unchanged at 3.19%, and the year bill was unchanged at 3.31%.

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