The Treasury market barely budged yesterday as trading paused ahead of the week's two key events: a meeting of Federal Reserve policymakers and the June employment report.

The 30-year bond closed up 1/8 of a point, to yield 7.58%.

The Federal Open Market Committee met yesterday and plans to meet again today to decide whether another increase in short-term rates is in order. Though bond market participants generally believe the U.S. central bank will leave interest rate policy unchanged, fear that the FOMC will announce a tightening of monetary policy generally kept bond investors on the defensive yesterday.

On the economic statistics front, players are bracing for Friday's employment report, which will provide bond investors with their first comprehensive view of the economy's performance in June.

"The talk in the market is all about the Fed and the jobs report," said Fred Leiner, bond market strategist at Continental Bank. "People have been able to focus on little else."

Treasuries mustered some support from a decline in commodities prices. A drop in grains prices sent the Knight Ridder Commodity Research Bureau index of 21 key futures prices sharply lower yesterday. The index closed down 3.30 points to 226.73.

But bond market participants remained focused on the FOMC meeting and the potential for a strong jobs report. Fed officials have their work cut out for them this week as they meet amid bond market concerns that inflation is on the rise and the U.S. dollar continues to weaken.

Observers generally expect the Fed to leave rates unchanged at the meeting. Though some analysts believe economic growth is strong enough to warrant an immediate tightening, many believe the Fed will wait at least until after Friday's jobs report before pulling the trigger.

"We doubt that the Fed would undertake a policy firming in order to bolster the dollar's foreign exchange market value, unless a firming were warranted by [gross domestic product] and inflation," said Elliott Platt, director of financial markets research at Donaldson, Lufkin & Jenrette Securities Corp.

"In this context, we strongly feel that the Fed would not initiate a firming" at this week's FOMC meeting, Platt said.

Another incentive for the Fed to do nothing is uncertainty about how the global financial markets would react to a credit tightening move. Some feel the fixed-income markets would react negatively because a tightening might act to validate investors' fear of inflation and signal that the Fed will continue to ratchet up rates.

Adding to the list of reasons for steady policy, players said it would be out of character for the central bank to tighten credit a few days before the release of an employment report. The Fed, they said, would rather have those numbers in hand before making any decisions.

That means the Fed could raise interest rates following Friday's employment report. On the back of a 191,000 increase in nonfarm payroll employment for May, economists are forecasting a hefty gain in nonfarm jobs for June of at least 250,000. A good number of economists believe payrolls could show an increase of 300,000 jobs or more.

With respect to shoring up the dollar, a number of Wall Street observers subscribe to a scenario in which the Fed would coordinate a tightening of credit with rate cuts by both the Bank of Japan and the Bundesbank. They believe that raising U.S. interest rates at the same time as two other Group of Seven members nations ease policy would avoid a potential meltdown in the global marketplace.

Such discussions could take place at this weekend's economic summit meeting in Naples, when the largest industrialized nations meet to discuss the global economy. Bond market players agree that interest rate policy and the weak dollar will be major points of focus.

In other news yesterday, the Johnson Redbook Report showed sales at the nations' retailers rose a seasonally adjusted 3.5% in June from May.

The report also showed June sales up 8.7% from the same month last year. Department store sales for the final week of June rose 8.3%, Redbook staff said, continuing the strength seen in the first four weeks of the month.

Regionally, sales growth was strongest in what Redbook staff described as the Southwest-West, followd by the Central region, the Southeast, and the East.

In futures, the September bond contract ended up 9/32 at 101.20.

In the cash markets, the 6% two-year note was quoted late Tuesday up 3/32 at 99.25-99.26 to yield 6.10%. The 6 3/4% five-year note ended up 4/32 at 99.09-99.11 to yield 6.90%. The 7 1/4% 10-year note was up 5/32 at 99.18-99.22 to yield 7.29%, and the 6 1/4% 30-year bond was up 4/32 at 84.08-84.12 to yield 7.58%.

The three-month Treasury bill was up one basis point at 4.29%. The six-month bill also was up one basis points at 4.81%, and the year bill was down three basis points at 5.44%.

Duff & Phelps Credit Rating Co. said it placed the senior notes of Anadarko Petroleum Corp., currently rated A-Minus, on Rating Watch with positive implications.

About $400 million in debt securities is affected, the rating agency said.

Duff & Phelps said the Rating Watch status recognizes the favorable trends in Anadarko's debt protection measures as a result of management's pursuit of profitable growth through exploration and selective acquisition. Anadarko's track record of adding reserves at competitive costs places it among the best in the industry, the rating agency said.

Duff & Phelps said that by maintaining an effective balance between exploration and development drilling in proven petroleum provinces, Anadarko has succeeded in steadily increasing production volumes and establishing an attractive inventory of prospects for future reserve growth.

Low operating costs contribute to strong operating margins and, along with the enhanced diversification that has accompanied Anadarko's expansion into new operating regions, lessen commodity price risk, Duff & Phelps said. In addition, Anadarko's conservative financial practices, including adjusting program spending to track cash flow from operations and maintaining relatively low debt leverage, enhance financial flexibility.

The rating agency said that the Rating Watch addition reflects expectations that continued strength in natural gas prices and higher consolidated production volumes will lead to further gains in operating cash flow and steadily improving debt protection measures. The Rating Watch status also assumes that management will maintain, on a longerterm basis, a fixed-obligation ratio of about 40%, the rating agency said.

In the secondary market for corporate securities, spreads of investment-grade issues narrowed by 1/8 to 1/4 of a point, while high-yield issues generally ended unchanged.

Treasury Market Yields Prev. Prev. Monday Week Month3-Month Bill 4.29 4.23 4.166-Month Bill 4.81 4.76 4.641-Year Bill 5.45 5.36 5.112-Year Note 6.10 6.03 5.753-Year Note 6.41 6.31 6.075-Year Note 6.90 6.78 6.487-Year Note 7.12 6.81 6.5310-Year Note 7.29 7.15 6.9030-Year Bond 7.58 7.45 7.21 Source: Centor, Fitzgerald/Telerate

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