A big rise in unemployment claims gave prices a boost early yesterday and then fed the market all day long, pushing the long bond up almost a full point to its lowest yield since January.
The 30-year bond finished the New York session up 30/32, to yield 7.53.
The bond had traded down about 1/8 point prior to yesterday morning's news from the Labor Department that unemployment insurance claims jumped 19,000, to a seasonally adjusted 422,000, in the week ended July 11.
Most economists were predicting a smaller rise, to about 409,000, and some even forecast a slight drop.
"The labor force is showing no signs of improvement," said Kevin Flanagan, a money market economist at Dean Witter Reynolds Inc. "We're still over 400,000 and we can't break that barrier."
Mr. Flanagan said the market was concerned the figure would show improvement because of overstated weakness in previous results. "But the claims pattern so far suggests that won't be the case," he said.
One trader characterized buyers yesterday as "very reluctant," but persistent. "It's scary rallying up into supply," he said, referring to the upcoming August quarterly refunding.
Yesterday's one-year bill auction indicated lukewarm support with an average of 3.37%, the lowest in 30 years. The bid cover was 2.44.
Ford Motor Co. announced yesterday that its domestic car sales dropped to 40.826 during the July 11 to July 20 period, from 43,765 in the same period last year.
But the market paid little attention because General Motors Corp. said it would wait until Aug. 3 to release its mid-July sales. As a result, Ward's Automotive Report is postponing its estimate of Chrysler Corp.'s 10-day sales. Chrysler only releases its sales figures at the end of the month.
Mr. Flanagan said the results from other car makers suggest the industry is "not weak but not strong either."
Late yesterday, the when-issued two-year note was bid at 4.25%, and the when-issued five-years were quoted at 5.64%.
The September bond futures contract closed 30/32 higher at 103.30.
In the cash market, the 30-year 8% bond was 30/32 higher, at 105 11/32-105 15/32, to yield 7.53%.
The 7 1/2% 10-year note rose 29/32, to 105 17/32-105 21/32, to yield 6.70%.
The three-year 5 7/8% note was up 9/32, at 103 10/32-103 12/32, to yield 4.57%.
Rates on Treasury bills were mixed, with the three-month bill down one basis point at 3.16%, the six-month bill unchanged at 3.24%, and the year bill one basis point lower at 3.36%.
A spokesman for the Federal Reserve Bank of New York reported at the weekly press briefing yesterday that: The nation's M1 money supply fell $3.6 billion to $956.5 billion in the week ended July 13; the broader M2 aggregate dropped $2.5 billion, to $3.453.4 trillion; and M3 jumped $19.9 billion, to $4.155.6 trillion, in the same period.
Also, for the week ended Wednesday, the federal funds rate averaged 3.22%, compared to 3.28% for the previous week, according to the New York Fed.
Today's report on durable goods orders for June should show a rise of 0.8%, according to 13 economists surveyed by The Bond Buyer.
Analysts said a rise of that size could be a catalyst for profit taking today, after yesterday's big gains.
Durable goods orders fell 2.1% in May and rose 1.8% in April.
In other news yesterday, Salomon Inc. announced its Salomon Brothers securities unit earned $1.02 billion in the first half, before taxes and before the effects of $385 million in special charges were taken into account.
The firm settled its Treasury auction bidding scandal with a $290 million payment to the U.S. government in the second quarter.
"Salomon took the important step of resolving the U.S. Treasury auction investigations that had focused on the company since August 1991," said Robert E. Denham, Salomon's chairman and chief executive officer.
Mr. Denham said the scandal had hurt the company's business in many ways, but the aftereffects were not all negative. "Salomon Inc. and Salomon Brothers have been prompted to make important changes that should add to shareholder value in the future," he said.
Treasury Market Yields
Thursday Week Month
3-Month Bill 3.20 3.21 3.69
6-Month Bill 3.31 3.29 3.81
1-Year bill 3.47 3.45 4.05
2-Year Note 4.13 4.20 4.88
3-Year Note 4.57 4.69 5.34
5-Year Note 5.58 5.77 6.31
7-Year Note 6.15 6.33 6.70
10-Year Note 6.70 6.84 7.13
15-Year Bond 7.08 7.20 7.43
30-Year Bond 7.53 7.60 7.76
Source: Cantor, Fitzgerald/Telerate