A couple of carmakers reported weaker-than-expected sales figures yesterday, which helped Treasury note and bond prices post small gains late in the session.
The 30-year bond closed 1/4 point higher, where it yielded 8.21%.
The improvement yesterday occurred as the market prepared to bid on the $38 billion of notes and bonds to be sold at this week's quarterly refunding.
And it followed a rally of more than a point at the long end Friday after the weak July employment report suggested the recovery would be sluggish at best and increased the chances that the Fed will ease policy again.
Despite the approach of the record refunding auctions, "people still seem to be positive and still seem to be buying," said Liz Capo, a Treasury market analyst at Stone & McCarthy Associates in Princeton, N.J. "You didn't see any sell-off."
Traders said yesterday's move higher was linked to Chrysler Corp.'s announcement of weaker-than-expected sales.
Earlier in the afternoon, Treasury prices had dipped after Ford reported it had sold 1.3% more cars in late July than in the same period a year earlier. Analysts had expected a decline in Ford's sales.
But later General Motors reported a small decline in its late-July sales. And near the close of futures, Chrysler Corp., which only announces its sales at the end of the month, rather than every 10 days, said its sales contracted 33.8% in July to 41,974 cars, from the 60,948 sold in July 1990.
For the month of July, analysts estimated domestic car sales came in at a 6.8 million annual rate, in line with expectations and slightly above the 6.7 million pace in June.
Traders said the declines in General Motors' and Chrysler's sales reassured participants who had become concerned about Ford's small increase. In general, trading flows were thin yesterday, as is usual on Mondays, and it took little to move prices, they said.
The refunding kicks off today with $14 billion of three-year notes. The three-year sale is normally the most popular of the three auctions, but traders sounded nervous about the auction late yesterday.
A note trader said he did not expect the Federal Reserve to ease at least until Friday.
If the Fed is not going to ease before the auctions, "I don't think we have interest in buying three-year notes at these prices," the trader said.
Late yesterday, the when-issued three-year was quoted at a yield of 6.99%.
Ms. Capo said she was cautious about the three-year because the market went ahead and accounted for another Fed ease in prices after Friday's employment report.
"If people buy it and don't see an immediate Fed easing, there's a possibility rates could go up, hurting [the new owners] in the secondary market," she said. "People may be slightly hesitant."
On the plus side, she said, the yield of almost 7% on the three-year offers banks a comfortable spread over money they borrow through certificates of deposit. "That may be an enticement to some of the bank players."
And Ms. Capo pointed out that all three of this week's issues yield more than the cost of financing the securities overnight. "Positive carry always helps the auctions," she said.
The September bond futures contract closed 5/32 higher at 96 3/32.
In the cash market, the 30-year 8 1/2% bond was 1/4 point higher, at 98 26/32-98 30/32, to yield 8.21%.
The 8% 10-year note rose 3/16, to 99 24/32-99 28/32, to yield 8.01%.
The three-year 7% note was up 1/32, at 100 1/32-100 3/32, to yield 6.95%.
In when-issued trading, the 10-year note to be sold tomorrow stood at 8%, and the 30-year bond to be auctioned Thursday was quoted at 8.20%.
Rates on Treasury bills were mixed, with the three-month bill up three basis points at 5.51%, the six-month bill up two basis points at 5.58%, and the year bill one basis point lower at 5.69%.
Treasury Market Yields
Monday Week Month
3-Month Bill 5.65 5.73 5.73
6-Ponth Bill 5.81 5.93 5.89
1-Year Bill 6.02 6.20 6.31
2-Year Note 6.66 6.82 6.94
3-Year Note 6.95 7.18 7.37
4-Year Note 7.09 7.31 7.57
5-Year Note 7.59 7.79 7.97
7-Year Note 7.86 8.04 8.20
10-Year Note 8.01 8.19 8.31
20-Year Bond 8.20 8.34 8.48
30-Year Bond 8.21 8.38 8.49
Source: Cantor, Fitzgerald/Tolerate