After registering big gains two sessions in a row, the market spent a quiet day yesterday consolidating profits.
The softer tone, which is expected to be only a minor ripple in the market's overall bullish trend, left the long bond off 3/8 point at the end of the New York session, to yield 7.24%.
Ten-year notes fared somewhat better than the rest of the curve most of the day, but ended off 9/32, to yield 6.32%. Market participants said there is interest in 10-years coming from mortgage desks, where investors dealing with the prepayment binge are looking for alternative securities.
The intermediate sector came under pressure late in the day because of hedging associated with yesterday's huge volume of new corporate issuance. More than $3.5 billion in high-grade corporate bonds came to market yesterday.
There have been few economic indicators or supply factors to influence trading in recent days. One piece of news yesterday came from the U.S. Chamber of Commerce, which reported that businesses lost confidence in the economy during August.
The chamber's business confidence index, which is released every two months, dropped to 58 from 64.2 in June, marking the first decline in 1992. A reading above 50 indicates the economy is expect to expand, and a reading above 70 suggests accelerated growth.
The index was in line with the market's perception that the economy has a long- way to go before a true recovery takes hold.
The results reflect "the continuing inability of the economy to rise from the recession," said Lawrence Hunter, chief economist at the chamber. "We expect the situation to continue at Ieast through the end of the year, with little improvement next year and the distinct possibillty that things will get worse."
The component of the index that measures businesses' outlook on the prospects for the economy during the next six months fell to 56.7 from 70.9 in June.
In other news favorable for the market, Wayne Angell, a Federal Reserve Board governor, said yesterday that the board should stick to its policies of containing inflation rather than trying to reinflate the economy.
In a speech to accountants, Mr. Angell said the U.S. economy is not in a recession, but is struggling to overcome a major debt burden and other structural problems.
"This event that we're in isn't a recession," he said. Rather, the economy is in "a long period of re-adjustment" from inflation and other excesses of the past two decades.
In other news yesterday, the Johnson Redbook report showed retail sales were up 2.5% in the first week of September compared with the August rate. Sales for the first week of the month rose 9.8% from the same period last year, with the best showing coming from retailers in the central and eastern parts of the count .
Next week's report is expected to show stronger sales because it will include results from the Labor Day weekend.
Michael Moran, chief economist at Daiwa Securities, said the market backed off a few ticks on the release because it could signal a pickup in household spending. But he warned investors should be cautious about reading too much into the report because of the effects of the Labor Day weekend on its conclusions.
Sales at the wholesale level in July were reported stronger than expected yesterday, rising 1%.
Today, the Labor Department is set to release initial unemployment claims for the week ended Aug. 29, and market participants say they expect the figure to increase from the 386,000 reported the previous week. Adding a degree of uncertainty to the figure will be the effects of Hurricane Andrew and recent plant closings by General Motors.
The December bond futures contract closed 11/32 lower, at 106 18/32.
In the cash market, the 7 1/4% 30-year bond was down 3/8 point, at 99 28/32-100, to yield 7.24%.
The 6 3/8% 10-year note fell 9/32, to 100 7/32-100 11/32, to yield 6.32%.
The three-year 4 5/8% note was 1/8 lower, at 100 25/32-100 27/32, to yield 4.31%.
Rates on Treasury bills were higher, with the three-month bill up one basis point at 2.92%, the six-month bill one basis point higher at 2.96%, and. the year bill four basis points higher at 3.06%.
Treasury Market Yields
Wednesday Week Month
3-Month BilI 2.96 3.19 3.16
6-Month Bill 3.02 3.29 3.28
1-Year Bill 3.15 3.40 3.41
2-Year Note 3.83 4.08 4.14
3-Year Note 4.31 4.55 4.70
5-Year Note 5.24 5.48 5.51
7-Year Note 5.80 6.01 6.00
10 -You Note 6.32 6.51 6.50
30-Year Bond 7.24 7.36 7.32
Source: Cantor, Fitzgerald/Telerate