The Treasury market paused to catch its breath yesterday after Wednesday's rally, and prices ended almost unchanged.

Late in the afternoon, the 30-year bond was steady and yielded 6.55%.

On Wednesday, the long bond reached a new record low yield as the market rallied in response to good inflation news.

Yesterday's trading was subdued and prices were confined to narrow ranges.

"It was a relatively quiet day." said Charles Lieberman, a managing director at Chemical Securities. "The market tried to rally a couple of times, with not much success, obviously."

Some analysts said the bond market had performed well just by managing to stay at the historically high prices it reached Wednesday.

"When you look at the levels, you have to be amazed the market isn't losing anything," said Astrid Adolfson, an economist at McCarthy Crisanti & Maffei.

Adolfson said a host of factors operated in the market's favor, including weaker-than-expected indicators like yesterday's Philadelphia Fed July survey of business activity.

"The data continue to give us pleasant surprises, showing growth isn't roaring back," she said.

The Philadelphia Fed's July diffusion index fell to a negative 10.3% from June's negative 6.5. Economists had expected the index to improve in July.

Jay Goldinger, a market strategist at Capital Insight in Los Angeles, said the Treasury market "just has a great undertone. "

"Everybody just tries to sell it and it keeps bouncing back," he said.

Goldinger said the market's strength reflected the fact that "money just continues to pour in."

There has been a lot of talk in the Treasury market recently about municipal defeasance buying and swaps out of the mortgage-backed market, but Goldinger said the "consistent money" is coming from mutual funds.

Traders said the long end also benefited yesterday from the $11 billion the Treasury paid to investors, including $7 billion from a maturing seven-year issue and $4 billion in coupon payments. The rest of yesterday's economic news had little effect on Treasury prices.

The 0.2% increase in May business inventories was in line with expectations.

But Scott Winningham, chief market analyst at Stone & McCarthy Research Associates in Princeton, N.J., said the upward revision to April inventories was significant because it would cause economists to revise up their estimates of second-quarter output. April inventories now show a 0.4% gain, up from the 0.1% increase originally reported.

The market also ignored yesterday's jobless claims.

The Labor Department said new claims rose 2,000, to 334,000, in the week ended July 10. The previous week's claims were revised up 5,000, to 332,000. The consensus forecast called for a 9,000 increase to 336,000.

Marilyn Schaja, a money market economist at Donaldson, Lufkin & Jenrette Securities Corp., said the report shows that the labor market is continuing to improve at a slow rate.

Schaja said it was hard to measure the impact of the July 4 holiday on the claims filings in the week of July 10. "Typically, claims drop during the week of a holiday, but it seemed that the seasonal factor more than compensated for the holiday," she said.

Also yesterday, the Federal Reserve Bank of New York reported yesterday that the nation's M1 money supply fell $2 billion to $1.1 trillion in the week ended July 5, while the broader M2 aggregate dropped $1 billion, to $3.5 trillion and M3 declined $100 million, to $4.2 trillion.

The market is expecting another weak economic indicator today. The consensus forecast calls for a 0.1% decline in June industrial production, following the 0.2% rise in May. Also today, the May merchandise trade deficit is expected to narrow to $9.2 billion from the $10.5 billion gap posted in April.

The September bond futures contract closed 1/32 lower at 115 22/32.

In the cash market, the 71/8% 30-year bond was unchanged, at 107 9/32-107 11/32, to yield 6.55%.

The 61/4% 10-year note was steady, at 103 30/32-104, to yield 5.70%.

The three-year 41/4% note was down 1/32, at 99 29/32-99 31/32, to yield 4.26%.

Rates on Treasury bills were steady to higher, with the three-month bill up two basis points at 3.02%, the six-month bill up two basis points at 3.14%, and the year bill unchanged at 3.27%.

In other news, the New York Fed reported that the federal funds rate averaged 3. 01% for the week ended Wednesday, down from 3.10% the previous week.Treasury Market Yields Prev. Prev. Thursday Week Month3-Month Bill 3.06 3.06 3.086-Month Bill 3.21 3.17 3.221-Year Bill 3.37 3.36 3.422-Year Note 3.95 3.94 4.053-Year Note 4.26 4.26 4.415-Year Note 4.97 4.99 5.147-Year Note 5.32 5.38 5.5310-Year Note 5.70 5.74 5.9130-Year Bond 6.55 6.65 6.80 Source: Cantor, Fitzgerald/Telerate

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