It was a buyer's market once again yesterday as fundamental and technical factors attracted steady flows of money and investors into Treasuries.
Widespread buying interest helped the 30-year bond hit another record yesterday. The long bond ended up 23/32, to yield 6.25%, its lowest yield in the 16 years the Treasury has held regular bond auctions.
Prices rose throughout the session as investors continued to react to the positive fundamental and technical strength of the market. While no fresh news emerged to inspire trading, the bullish tone allowed the recent rally at the long end of the curve to persist.
"The bond is trading in a world of its own for a number of reasons," said James Rice, head government trader at Aubrey G. Lanston & Co. "It's impressive."
Strip-buying proved to be a boon for the long end again yesterday as Japanese and speculative accounts purchased zero coupon bonds to get the most out of moves in the market, traders said.
Technical buying also contributed to the bond's solid performance. The September bond futures contract surged to 210 on a calculated basis yesterday. This spread is used as a barometer of how the futures market performs relative to the cash market, much as market participants use the yield curve spread.
While the bond contract continued to underperform the cash bond, technical analysts said that scarcity in the cash bond and expectations for a long overdue correction in the futures market supported the contract.
"The picture for futures is getting brighter as the cash market's strong performance begins to tone down," said Delilah Ramos, technical analysis at MCM Money Watch. "That prompted some technical buying today."
The short and intermediate sectors also attracted buyers, despite the flattening trend of the yield curve. Traders said that good inflation news and expectations for steady monetary policy have brought the short end back into vogue.
Rumors that the Federal Reserve was buying two-, three-, and five-year notes on behalf of a customer account provided dealers with impetus to buy the short end. Participants speculated that the Fed was making the purchases for the Bank of Japan, related to the bank's efforts to support the level of the U.S. dollar against the yen.
The bills sector experienced a minor setback when the Fed failed to announce a coupon pass yesterday. Participants look for one later in the week.
Traders expect yields, particularly at the long end, to move even lower in the coming session as positive fundamentals continue to underpin the market.
"People clearly have a lot of money to invest and you have to be positive on the market with so many buyers out there," said Jay Goldinger, chief investment officer at Capital Insights Inc. Los Angeles.
But with no significant economic reports slated for release this week, Goldinger said that activity is likely to remain thin and technically driven.
Rice of Aubrey G. Lanston said a six-month drought of supply at the long end and prospects that the market will blow through next week's monthly auctions of two-and five-year notes have given buyers more confidence in the market.
Aside from major economic releases, the market received some good news from the business sector yesterday. Eastman Kodak joined a number of blue-chip firms and announced that it will eliminate another 10,000 jobs by 1995.
A survey released yesterday paints a similar picture of the employment sector. The latest survey from the Financial Executives Institute says the nation's senior financial executives believe that corporate America will increase its sales, revenues, and profits over the last six months of 1993, but they do not see those increases translating into an explosion of new jobs.
In fact, the survey says most financial executives reported that their companies are still restructuring their work forces and eliminating jobs, particularly in administration and management.
The survey finds that 63% of financial executives do not expect any substantial increase in hiring "in the foreseeable future."
Meanwhile, 70% of executives predicted that their companies would cut jobs in administration and management in the last half of 1993, while 50% expected cuts in production jobs.
"The good news in these projections is that America's corporations are healthy and becoming increasingly competitive," said P. Norman Roy, president of Financial Executives Institute.
"Companies are increasing sales and profits with fewer people, and that will help us compete more effectively for international markets. The downside is the sluggish creation of new jobs. That's discouraging, but the jobs will come as increased profitability impels companies to expand."
In other news, the Treasury left the size of its two- and five-year note offerings unchanged. The Treasury said it would raise $13.875 billion of new cash by auctioning $16 billion of two-year notes on Tuesday Aug. 24, and $11 billion of five-year notes on Wednesday, Aug. 25. to replace $13.12 billion in maturing securities.
The two-year notes, to be dated Aug. 31 and to mature Aug. 31, 1995, will be issued in $5,000 minimum denominations. The five-year notes, to be dated Aug. 31 and to mature Aug. 31, 1998, will be issued in $1,000 minimum denominations.
In addition to public holdings, the Federal Reserve holds $976 million in maturing securities for its own accounts and $955 million as an agent for foreign and monetary authorities.
In futures, the September contract ended up 5/32 to 116.11.
In the cash markets, the 4 1/4% two-year note was quoted late yesterday up 2/32 at 100.17-100.18 to yield 3.94%; the 5 1/4% five-year note ended up 7/32 at 100.31-101.01 to yield 5.01%; the 6 1/4% 10-year note was up 9/32 at 100.17-100.19 to yield 5.67%; and the 7 1/8% 30-year bond was up 23/32 at 99.28-99.30 to yield 6.25%.
The three-month Treasury bill was down three basis points at 3.03%, the six-month bill was down two basis points at 3.18%, and the year bill was down two basis points at 3.37%.Treasury Market Yields Prev. Prev. Wednesday Week Month3-Month Bill 3.03 3.07 3.126-Month Bill 3.18 3.23 3.271-Year Bill 3.37 3.47 3.482-Year Note 3.94 4.06 4.123-Year Note 4.33 4.45 4.455-Year Note 5.01 5.12 5.167-Year Note 5.29 5.39 5.5010-Year Note 5.67 5.76 5.8330-Year Bond 6.25 6.42 6.62Source: Cantor, Fitzgerald/Telerate