Long-term Treasury prices improved modestly Friday afternoon on reports that Democratic presidential candidate Bill Clinton would issue less long-term debt if elected.

Late in the day, the 30-year bond was up 1/8 point on the day and 1/2 point above the day's lows, and yielded 7.31%.

Traders said the long end perked up when wire services reported that Gov. Clinton would save money by issuing more short-term paper and less long-term debt.

"That really got the long end going," a note trader said. "There's been very, very good buying [of] zero coupons and long bonds."

Douglas Schindewolf, an economist at Smith Barney, Harris Upham & Co., said the reports arose from an item in the economic plan released by the Clinton campaign, which estimate $6 billion of savings over the next four years from "reform of debt financing."

The plan does not specifically say the savings would be achieved by shifting issuance out of the long end, but Mr. Schindewolf said the math would work out.

Right now the Treasury sells about $40 billion of bonds each year and pays about 400 basis points more in interest on that debt than it would on short-term securities. That suggests the government could save about $1.4 billion a year, or roughly $6 billion over four years, by issuing short-term securities in place of bonds, he said.

Of course, any such change is highly speculative and would only occur it Gov. Clinton were elected.

An official at the Clinton campaign could not be reached for comment.

Until the reports about the possible cut in bond sales got the market moving, Friday's activity had been extremely quiet.

Traders said some retail investors pared back their positions ahead of the weekend's French vote on the Maastricht accord and the meeting of the Group of Seven industrialized nations.

But most participants had already adjusted their positions on Thursday and spent Friday on the sidelines, they said.

The Treasury market's focus will remain on Europe this week, as the financial markets assess what yesterday's French referendum on the Maastricht treaty said about the outlook for European political and economic union.

Traders said they expect volatile trading today, but most said the reaction should not be as extreme as the fluctuations that occurred last Wednesday, when Great Britain said it would let the pound float outside the bands set by Europe's Exchange Rate Mechanism.

Charles Lieberman, a managing director at Chemical Securities Inc., said Treasury trading would be a "sideshow," as traders watch the foreign exchange market.

But he said the French vote was far from the final chapter in the European Monetary System's current woes, since there are still many important problems to be resolved.

"The French vote will only determine whether the French are willing to support political integration," Mr. Lieberman said. "It doesn't address how the British will get lower interest rates to enable their economy to recover, whether the Germans are satisfied their interest rates have been high enough for long enough to address inflation," and a variety of other issues.

Traders said the breakdown in the European system suggested individual European countries would begin to lower their interest rates to boost their domestic economies, and some saw that as a positive for the bond market, since it might give the Federal Reserve more leeway to lower its rates.

But a coupon trader said it was not clear how Treasury traders would respond to a yes or no vote by the French.

The Treasury will auction $25 billion of short-term notes over the next two days, and that supply will also be a factor, he said.

"If the market traded significantly higher, I would imagine people would use it as an opportunity to sell," the trader said.

Treasury prices got a momentary lift Friday morning when the University of Michigan told its subscribers that its index of consumer sentiment fell to 74.2 in September from 76.1 in August.

The December bond futures contract closed 11/32 higher at 105 24/32.

In the cash market, the 7 1/4% 30-year bond was 5/32 higher, at 99 2/32-99 6/32, to yield 7.31%.

The 6 3/8 10-year note fell 1/32, to 99 23/32-99 27/32, to yield 6.39%.

The three-year 4 5/8% note was up 1/32, at 100 24/32-100 26/32, to yield 4.33%.

In when-issued trading, the two-year note to be auctioned tomorrow was bid at 3.86% and the five-year note to be sold Wednesday was bid at 5.42%.

Rates on Treasury bills were lower, with the three-month bill down two basis points at 2.88%, the six-month bill down two basis points at 2.91% and the year bill one basis point lower at 3.01%. !!! TABLE-BEGIN

Treasury Market Yields

Prev. Prev.

Friday Week Month

3-Month Bill 2.92 2.97 3.12

6-Month Bill 2.97 3.01 3.25

1-Year Bill 3.10 3.16 3.44

2-Year Note 3.79 3.84 4.06

3-Year Note 4.32 4.34 4.60

5-Year Note 5.38 5.31 5.49

7-Year Note 5.91 5.87 6.02

10-Year Note 6.39 6.35 6.50

30-Year Bond 7.31 7.28 7.34

Source: Cantor, Fitzgerald/Telerate !!! END-TABLE

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