Bond investors can't seem to get a break these days.

Just when it seemed that the Federal Reserve had gotten the urge to tighten out of its system, Treasury market participants were faced with evidence last week that the economy is not cooling off and that interest rates may move higher soon.

The surprising upward revision to first-quarter gross domestic product last week threw cold water on the notion that economic activity is moderating and left Treasury market participants uncertain about the state of fundamentals.

As if that news weren't bad enough for fixed-income market players, Fed Chairman Alan Greenspan suggested Friday that the central bank may need to boost short-term rates again. Testifying before the Senate Committee on Banking, Housing and Urban Affairs to defend his monetary policy of increasing short-term interest rates three times this year, Greenspan said monetary policy may need to be tightened further, even at the risk of curbing economic expansion.

The problem for bonds is that events in recent sessions cast an element of uncertainty into a market already haunted by fears of rising inflation and a lack of buyers.

"The most important factor for the market is whether portfolios get involved," said Anthony Karydakis, senior financial economist at First Chicago Capital Markets Inc. "We have to see whether large accounts will assess current fundamentals and yield levels as attractive."

Participants generally agree that the lack of buy-side demand for government-backed paper -- both in the primary and secondary markets -- continues to weigh on the outlook for Treasuries.

Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc., said larger accounts are looking for a more s table interest rate environment and assurances that the economy is not overheating before entering the market.

"We need a consistent set of economic reports that show us whether the economy is strengthening or whether growth is moderating," Wesbury said.

The deciding factor for some accounts will be the outcome of this week's economic reports. Bond investors will get hit with a barrage of economic statistics, including personal income and spending, new home sales, and the National Association of Purchasing Managers survey. But the most important will be the employment figures, which will provide the market with its first comprehensive look at the economy's performance in May.

Wall Street experts fear another solid month of employment gains could place additional pressure on the bond market and keep long-term interest rates rising.

"I think the market is going to have a problem with the employment numbers because they'll be consistent with the view that the economy is growing steadily," said Charles Lieberman, director of financial markets research at Chemical Securities Inc. Lieberman expects nonfarm employment to increase by 300,000 in May.

Economists polled by The Board Buyer generally expect an increase of 275,000 nonfarm jobs in May, with 15,000 coming from the manufacturing sector. The civilian unemployment rate is expected to hold steady at 6.4%.

Market players are approaching the jobs report with caution, as bond investors increasingly fear that an upside surprise may be in store for the market as it was with the GDP report Friday. The bond market was caught off guard by an upward revision in GDP to 3% from 2.6%. In addition, some players expressed concern about the upward revision to the fixed-weight deflator to 3.1% from 2.9%.

In futures trading Friday, the June bond contract ended down 10/32 at 104.01.

In the cash markets, the 5 7/8% two-year note was quoted late Friday down 3/32 at 99.26-99.27 to yield 5.95%. The 6 3/4% five-year note ended down 4/32 at 100.03-100.05 to yield 6.71% the 7 1/4% 10-year note was down 4/32 at 100.28-101.00 to yield 7.10%. and the 6 1/4% 30-year bond was down 11/32 at 86.10-86.14 to yield 7.38%.

The three-month Treasury bill was up one basis point at 3.26%, the six-month bill was up four basis points at 4.78%, and the year bill was up four basis point at 5.30%.

Corporate Securities

SPX Corp. Friday priced $260 million of eight-year senior subordinated junk notes to yield 11.75%, according to lead manager Merrill Lynch & Co.

The notes were priced at par and rated B3 by Moody's Investors Service and Standard & Poor's Corp.

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

Rating News

The Province of Ontario's debt rating was lowered by Moody's to Aa3 from Aa2.

Moody's said the new rating followed an in-depth review of the province's financial and debt outlook, and reflects the following credit considerations:

A budgetary imbalance, when combined with the growing portion of capital spending that is now in a non-budgetary account, will in the near term remain sizable and wider than what had been forecast last year, Moody's said. To a large extent, the deviations from the medium-term deficit targets set last fiscal year reflect a change in government policy that favors a more gradual approach to deficit reduction, according to the rating agency.

The revised medium-term plan contemplates, at the end of a five-year period, a substantial improvement in the province's finances. Expenditure control measures introduced in the last two years should help, Moody's said.

Debt levels will continue to increase rapidly in the next few years, given the anticipated requirements needed to fund the deficit and increasing non-budgetary capital spending, Moody's said. The further accumulation will push Ontario's tax-supported debt to a level higher than Moody's anticipated in May 1991, when the rating was lowered two notches from Aaa to Aa2.

Moody's also lowered Ontario's debt rating for its Euro and U.S. medium-term note programs to Aa3 from Aa2.

Similarly, Ontario Hydro's long-term debt rating was cut to Aa3 from Aa2, as a result of the lowering of the province's rating, Moody's said. The change in Ontario Hydro's rating reflects the fact that the provincial guarantee on interest and principal repayment of the debt issued by the utility is the central source of credit strength at this juncture, given the challenges facing the utility.

Short-term ratings on the U.S. commercial paper programs of the province and of Ontario Hydro remain at P-1.

Treasury Market Yields Prev. Prev. Friday Week Month3-Month Bill 4.26 4.23 3.946-Month Bill 4.78 4.70 4.431-Year Bill 5.30 5.08 5.072-Year Note 5.95 5.75 5.733-Year Note 6.29 6.11 6.065-Year Note 6.71 6.57 6.627-Year Note 6.75 6.63 6.6910-Year Note 7.10 7.00 7.0430-Year Bond 7.38 7.30 7.30 Source:Cantor, Fitzgerald/Telerate

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