Some buying by retail investors pushed Treasury prices higher yesterday, despite a series of robust economic reports.
By late in the afternoon, the 30-year bond was 1/2 point higher and yielded 7.35%, while note prices were up 1/8 to 1/4 point.
Traders said that flows remained light, with many participants waiting on the sidelines for the new year to begin, so that it took only a modest amount of buying to cause yesterday's price move.
Foreign investors reportedly bought five- and 10-year notes and 30-year bonds yesterday morning, while a municipal defeasance deal sopped up some short-term notes.
"I did hear of some retail buying, and obviously, the market couldn't accommodate the purchasing power of the buyers," a bond trader said.
The buying overshadowed some unfriendly economic news, including a surge in December consumer confidence and a jump in November existing home sales.
The Conference Board said yesterday that consumer confidence surged to 78.3 in December from a revised 65.6 reading in November. The consensus forecast called for a December reading of only 71.9.
The December gain of almost 13 points followed an 11 -point rise in November.
Fabian Linden, director of the Conference Board's consumer research center, said confidence had made "an imposing gain" over the last two months, which suggests there will be "significant improvement in the nation's economic performance."
But analysts cautioned that most of the improvement occurred in consumers' long-term expectations, rather than in their assessment of current conditions.
"It's nearly all in the expectations part, and that might be hype or euphoria that could fade away over anything in the coming months," said Carol Stone, a senior economist at Nomura Securities.
Also yesterday, the National Association of Realtors reported a 5.8% increase in November existing home sales, instead of the small decline that economists expected.
That put existing home sales at a 3.85 million-unit annual rate, the highest level in almost, six years.
Yesterday afternoon, prices dipped only briefly on another piece of strong data. The Johnson Red-book reportedly showed department store sales in the week ended Dec. 28, up 29.1% from last year's level, while December's total sales were up 10.4% from December of 1991.
"Those numbers do look quite strong on a year-over-year basis," said Ian Borsook, a senior economist at Merrill Lynch & Co.
But traders said technical factors were ruling the bond market yesterday, including the relatively thin flows and the lack of new supply.
"The technicals are very good," a coupon trader said. "We've just distributed some securities at lower levels, which made people feel better."
He added that the Fed's efforts to add reserves to the monetary system in.recent days have reassured participants worried about yearend funding costs.
A note trader said he thought some of yesterday's buying came from retail investors who stayed away from last week's five-year auction and now are buying those notes in the secondary market.
"The thinking was that the five-year might not go so well, so retail didn't buy at the auction," the trader said. "They waited while the Street sold out positions at losses, then they did their buying."
The trader expects technicals to remain positive through yearend, because "people want to dress up the books, and that type of mentality will keep the market here. "
Traders said they were not much interested in today's indicators. Economists expect November home sales to rise 3.2%, to a 619,000 annual rate, and the consensus forecast for November leading indicators calls for a 0.8% gain, following the 0.4% rise in October.
The March bond futures contract closed 11/32 higher, at 105 1/32.
In the cash market, the 7 5/8% 30-year bond was 1/2 point higher, at 103 3/32-103 7/32, to yield 7.35%.
The 6 3/8% 10-year note rose 10/32, to 97 26/32-97 30/32, to yield 6.66%.
The three-year 5 1/8% note was up 1/8, at 100 4/32-100 6/32, to yield 5.05%.
In when-issued trading, the 4 5/8% two-year note was 1/8 higher at 100 2/32_100 3/32 to yield 4.57% and the 6% five-year note was up 6/32 at 99 28/32-99 30/32 to yield 6.01%.
Rates on treasury bills were lower, with the three-month bill down three basis points at 3.19%. the six-month bill off three basis points at 3.35%, and the year bill two basis points lower at 3.48%.
Treasury Market Yields
Tuesday Week Month
3-Month Bill 3.24 3.26 3.40
6-Month Bill 3.44 3.39 3.60
1-Year Bill 3.60 3.60 3.84
2-Year Note 4.57 4.52 4.82
3-Year Note 5.05 5.05 5.36
5-Year Note 6.01 5.96 6.24
7-Year Note 6.36 6.30 6.59
10-Year Note 6.66 6.62 6.92
30-Year Bond 7.35 7.33 7.56