Gains from solid 2-year note auction eroded by dollar's slide.

A strong two-year note auction lent support to the Treasury market yesterday, but a slip in the dollar late in the day eroded some of the gains.

The Treasury's Dutch auction of $17.3 billion of two-year notes attracted strong demand, resulting in a yield of 6.27%.

Treasury officials said the bid-to-cover ratio was 3.27 to 1, indicating stronger support than in other recent two-year note auctions. Noncompetitive bids totaled $1.5 billion. Dan Seto, an economist at Nikko Securities, pointed to the high volume of both overall and noncompetitive as an indication of gooddemand from small investors. "This all points to a very well-bid two-year

note," Seto said.

The good showing also gives analysts a few clues as to investor perceptions about the bond market in general, he said.

"I think that with the Fed's policy seemingly on hold for a few months, investors probably see the two-year note as carrying somewhat less risk," Seto said. "In that environment, the risk of losing capital is relatively small. I believe that's why the two-year was bid so well."

Longer maturities are having more difficulty, Seto said, because the risk of higher inflation is still weighing on investors minds.

Also working against the market yesterday was widely publicized commentary from economist C. Fred Bergsten of the Institute for International Economics in Washington. Bergsten said the dollar could sink to more record lows before the United States and Japan reach a trade agreement.

The comments pushed the dollar lower, und the government market followed. The dollar traded late in the day at 97.87 Japanese yen and 1.5318 German marks.

Additional supply will hit the market today, when the Treasury plans to auction $11 billion of fiveyear notes.

The July durable goods report scheduled for release today is also expected to play a role in whether demand will be strong for the fiveyear issue, market sources said.

As far as indicators go, however, the durable goods report is not expected to have a lasting effect, especially because it offers a look backward at July, instead of a look forward.

More forward-looking indicators such as the August employment report will have wider impact, market sources said.

In other supply news, the Treasury announced yesterday it would sell $24.4 billion of three-month and six-month bills on Monday, with the sale equally divided between the two maturities.

In late trading yesterday, the 30-year bond was up more than 1/8 point to yield 7.53%, and the 10-year note was up 6/32 to yield 7.28%. The yield on the threemonth bill was down two basis points at 4.67%. The six-month bill was down three basis points at 5.10%, and the one-year bill was also three basis points lower at 5.61%.

In debt futures, the September Treasury bond contract closed up 9/32 at 102 13/32.

Corporate Securities

Moody's Investors Service yesterday confirmed its Ba3 rating on Anchor Bancorp's senior debt after assessing the effects of a planned merger between Anchor and Dime Bancorp.

"Although the Dime Anchor combination will initially hurt asset quality, it should improve given the prospects for better profitability based on planned expense reductions," Moody's said.

In conjunction with the move, Moody's raised Dime Savings Bank's deposit rating to Ba3 from B1, and its preferred stock rating to B2 from B3, pending the completion of the proposed merger.

Both high-grade and highyield securities were generally unchanged yesterday.

Treasury Sells Two-Year Notes at 6.27% Rate

WASHINGTON -- The Treasury yesterday sold $17.26 billion of two-year notes at a yield of 6.27%, up from the 6.04% yield incurred in the previous auction on July 26 and the highest since the 6.46% incurred on Aug. 27, 1991.

The coupon rate was 61/4%, up from 6 1/8% in the previous auction. The price was 99.917.

In the Dutch auction, all competitive tenders at yields below 6.27% were accepted in full.

Buyers who bid at the high yield of 6.27% were allotted 22% of their total bids. The median yield was 6.26%, and the low yield was 6.23%.

Tenders totaled $56.43 billion and the Treasury accepted $17.26 billion, including $1.5 billion of noncompetitive bids.

Federal Reserve banks bought $1.4 billion of the securities, as agents for foreign and international monetary authorities, in exchange for maturing securities. The Fed banks also bought $450 million for their own account in exchange for maturing securities.

The notes will mature Aug. 31, 1996.

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