Anticipation of good inflation news later this week helped long-term Treasury prices inch higher yesterday in otherwise dull trading.
Late in the afternoon, the 30-year bond was Up 6/32, where it yielded 6.62%. That is another record low close, down from Friday's 6.63% and Thursday's 6.65%.
Activity was subdued and traders said many participants were waiting to see the inflation numbers before making their next moves. The June producer price report will be released today and June consumer prices are due out tomorrow.
"There hasn't been a lot of action," a note trader said. "I guess everyone's where they want to be for tomorrow's number."
The market expects a small decline in producer prices and a small increase in consumer prices.
The consensus forecast calls for a 0.2% decrease in June producer prices and a 0.1% decline in the core rate, which excludes food and energy prices. That would be even better than May's report, which showed no change in producer prices and a 0.2% increase in the core rate.
That kind of inflation report should be reassuring after the big increases seen in producer and consumer prices in three of the first four months of the year, as well as the recent gains in commodity prices.
But many participants said they think the bond market has already wrung all possible price gains out of the June inflation reports.
"I think all the shorts have been chased in, and very favorable PPI and CPI [numbers] have been priced into the market," said Joe Plauche, a financial futures analyst at Dean Witter Reynolds Inc. "If the news comes as advertised, what brings in the incremental buyer?"
Plauche said the bond market might move higher later in the week if the federal budget negotiations go well. "But I don't see that happening off the PPI and CPI, especially because a lot of the moderation in those indices will be the result of tobacco prices," he said.
Tony Crescenzi, head of fixed income at Miller Tabak Hirsch & Co., said he thought the bond market was "setting itself up for a fall," because it will have little to look forward to once the inflation news is out of the way.
Supply is about to re-enter the picture, with the Treasury scheduled to announce a year bill auction on Friday and two- and five-year note sales next Wednesday.
Crescenzi also expects economic indicators to take on a rosier tone in coming weeks. For example, he said the July employment report is likely to look much stronger than the June statistics "because it will capture some of the employment gains missed in June report because of the early survey period."
Traders said yesterday's decline in commodity prices also helped long-term prices yesterday, as did expectations that municipal issuers will buy Treasury securities for defeasance deals this week.
The Commodity Research Bureau index closed .87 point lower at 215.18.
Yesterday's auction of $24.4 billion of three- and six-month bills went smoothly. The Treasury sold the three-month bills at an average rate of 3.04% and the six-month bills at an average rate of 3.14%.
The September bond futures contract closed 10/32 higher at 114 25/32, after setting a new contract high at 114 27/32.
In the cash market, the 7 1/8% 30-year bond was 6/32 higher, at 106 14/32-106 14/32, to yield 6.62%.
The 6 1/4% 10-year note rose to 103 24/32-193 26/32, to yield 6.62%.
The three-year 4 1/4% note was unchanged, at 99 28/32-99 30/32, to yield 4.27%.
Rates on Treasury bills were unchanged, with the three-month bill at 3.02%, the six-month bill at 3.12%, and the year bill at 3.27%.Treasury Maket Yields Prev. Prev. Monday Week month3-Month Bill 3.06 3.02 3.106-Month Bill 3.19 3.20 3.271-Year Bill 3.37 3.42 3.482-Year Note 3.95 3.99 4.123-Year Note 4.27 4.31 4.515-Year Note 4.98 5.03 5.207-Year Note 5.35 5.42 5.5810-Year Note 5.72 5.77 5.9630-Year Bond 6.62 6.67 6.81Source: Cantor, Fitzgerald/Telerate