Treasury prices ended mixed yesterday as the long bond outpaced other securities.

Late in the afternoon, the 30-year bond was up 3/8 point to yield 7.49%, while short-term and intermediate notes were unchanged to slightly lower.

Traders said the losses at the short end reflected the market's disappointment that the Federal Reserve had not lowered interest rates.

There were also reports that big players were executing curve trades that put pressure on the short-end and boosted long-term prices.

"Some of the more aggressive trading shops and portfolio managers are either taking off steepening trades or putting on flattening trades," the head of a trading desk said. "So what we saw was a very strong bond and the rest of the market weaker. "

Participants take off a steepening trade by covering a short position at the long end and selling short-term paper, and they bet on a flatter yield curve by buying long-term paper and establishing short positions at the front end.

The official said yesterday's price action did not reflect a change in basic market psychology, but rather a play by "highly leveraged professional types."

A coupon trader said it made sense to take off steepening trades given the flattening that has occurred recently. Late yesterday, the 30-year bond was yielding 350 basis points more than the two-year note, down from about 360 basis points a couple of weeks ago.

But even though a flatter yield curve fits in with the notion that the Fed is on hold and Treasury prices have put in a top, the trader said he would not be comfortable with that trade. "I think we'll see a lot more undulations in the curve," he said.

With Fed policy on hold, "you could get two-years back to 4 1/4%, but I think you could get long bonds back to 8% at that same time," the trader said. That would put the coupon curve at 375 basis points, up from 350 late yesterday.

Traders said the long bond's bounce also reflected some short-covering by speculative accounts that had expected a bigger downtrade.

The market traded in negative territory yesterday morning after falling overseas on disappointment that Federal Reserve Chairman Alan Greenspan's visit to Japan had not resulted in a coordinated rate cut.

Instead, Greenspan blamed the sluggish U.S. economy on the nation's debt burden and said it was not clear what the Fed could do to ease that situation.

Yesterday's economic reports, September retail sales and producer prices, were favorable for the bond market, but only lifted prices off their lows for a short period.

The long bond began to turn around at midday when early-October car sales showed some weakness. It strained higher through the afternoon and eventually brought other Treasury coupon prices along with it.

In spite of the long bond's gains yesterday, many traders are very pessimistic about the market's short-term prospects.

A bond salesman said the Fed's apparent reluctance to ease and the uncertainty about the presidential election had sent retail accounts to the sidelines.

An analyst said the market's bad mood "seems to have a substantial political dimension to it. For the last week or so, there's been greater discussion of the potential implications of the new administration, and that's caused the market to back up and trade poorly."

Investors at the long end worry about how a new administration's policies would affect inflation rates and the federal deficit. At the short end, traders wonder whether the prospect of a fiscal stimulus package will keep Fed policy on hold for months to come.

The trader said the amount of corporate issuance was also weighing on the market. Several participants compared the recent price action to the bond market's backup in January, when prices plunged in response to a glut of corporate supply and Greenspan's statement that Fed policy was on hold.

Yesterday's Indicators

The Treasury market managed to come off its lows for a while yesterday morning when the September retall sales report showed less growth than expected.

September retail sales rose only 0.3%, when economists had forecast a 0.5% increase. Excluding automobiles, September sales were up only 0.3%.

The moderate gain in September was partly offset by an upward revision in August sales, which now show no change instead of the 0.5% decrease reported last month.

The inflation news was also encouraging. September producer prices rose 0.3%, and the core rate, excluding food and energy prices, was up 0.2%. in line with Street expectations.

Economists were particularly impressed with the 1.9% year-over-year gain in the core rate of producer prices.

"That's pretty significant reduction," said Robert Dederick, chief economist at Northern Trust Co. "Inflation just simply is a nonproblem, and there are no signs it's going to be anything other than that in the near future."

"The numbers reflect modest economic growth without any discernable threat of inflation," said John Lonski, senior economist at Moody's Investors Service. "They tell us that if not for the political risk factor, both 10- and 30-year yields would be 25 to 30 basis points lower."

Dederick said the retail sales were also encouraging, with third-quarter sales up 5.5% from their level during the second quarter.

"There's a lot of talk about consumer confidence being low and that's correct, but despite that the consumer does seem to go out and spend," he said. "If there were more jobs, I suspect the consumer would go out and spend more."

The December bond futures contract closed 14/32 higher at 104.

In the cash market, the 7 1/4% 30-year bond was 13/32 higher, at 96 31/32-97 3/32, to yield 7.49%.

The 6 3/8% 10-year note fell 1/32, to 99-99 4/32, to yield 6.49%.

The three-year 4 5/8% note was off 3/32, at 100 12/32 100 14/32, to yield 4.45%.

In when-issued trading, the 6% seven-year note was 2/32 lower, at 100 12/32-100 14/32, to yield 6.06%. The seven-year notes, which were auctioned at a 6.01% average yield last week, will settle today.

Rates on Treasury bills were, higher, with the three-month bill up six basis points at 2.94%, the six-month bill up seven basis points at 3.02%, and the year bill four basis points higher at 3.14%.

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