The Treasury market slipped again yesterday beset by lingering fears that the Federal Reserve will reverse course and raise interest rates.

The Treasury's benchmark 30-year bond finished the day down 14/32, to yield 6.65%.

Bad news on the economic front made the market rally early, but prices quickly reversed and headed down for the rest of the day.

The sharpest blow came after Federal Reserve Chairman Alan Greenspan trooped up to Capitol Hill for the second time, to speak to the Senate Banking Committee.

Greenspan reaffirmed his stance that the Fed might raise interest rates if inflationary pressures reappear, despite considerable pressure from several senators on the committee that such a rate increase would hurt the economy.

With most economic statistics showing a lackluster economy, the market was hoping Greenspan Congress should not lower its deficit-cutting target of $500 billion.

"The implication of veering off the standard of the $500 billion, in my judgment, is clearly one which the markets would take quite negatively." Greenspan said.

Fending off the senators' complaints, Greenspan also told the senators that some of the Fed's concerns over inflation were calmed by the consumer and producer price indexes for May and June.

Prices took another blow after the one-year bill auction went worse than expected. The yield on the $15.5 billion of bills averaged 3.44% with a two basis points tail. Non-competitive bids were less than expected at $494 million, and the bid-to-cover ratio was 2.22.

Later in the afternoon, rumors that Illinois Rep. Dan Rostenkowski would resign further rolled the markets. Rostenkowski is under fire because of allegations in a House Post Office investigation.

"There is a negative tone in the market, and that makes it susceptible to these kind of rumors," one trader said.

The market actually opened up after the U.S. Department of Labor reported new jobless claims for the week ending July 17 were up 24,000 from the previous week to 352,000.

The 30-year bond was up 1/4 in early trading and intermediate terms were up about 1/8 while yields on the short end were down two basis points.

Fears of inflation ebbed further as oil prices retreated. A previously announced OPEC meeting to address oversupply concerns was postponed from July 28 to mid-August at the earliest. The price of West Texas intermediate crude for September delivery dropped slightly early and closed down 30 cents at $17.63 a barrel.

At the close, the September bond futures contract was off 19/32 to 114.12.

In the cash market, the 7 1/8% 30-year bond closed down 14/32 to yield 6.65%. The 6 1/4% 10-year note was down 12/32 to yield 5.88%. The 5 1/2% five-year note closed down 5/32 to yield 5.20%.

Rates at the short end were also off. The yield on the three-month bill was up two basis points to 3.14%. The six-month bill was up two basis points to 3.30%. and the one-year bill was up six basis points to 3.54%.

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