Treasury note and bond prices moved steadily higher throughout the day yesterday as investors sent the yield on the long bond down to 5.94%.
Traders said although volume was light throughout yesterday's session, the market opened on a positive note and just kept moving higher.
By the end of trading, the 30-year bond was quoted up over 1 1/8 point.
Prices had moved higher in the London and Tokyo markets yesterday, and by the time most traders were at their desks in New York, the long bond was up around 3/8 of a point and hovering around the 6% level.
Late last Friday, the minutes from the Federal Open Market Committee's Aug. 17 meeting were released and showed that the Federal Reserved has shifted to a strictly neutral policy on short-term interest rates. The decision by the Fed shifted its bias from a tight monetary policy that had been in place since May.
"We started to move higher on Friday with the report on August durable goods," said Thomas Kenney, head government trader at Prudential Securities Inc. "Then, the existing home sales figures moved the market even higher."
Yesterday morning, the National Association of Realtors reported that during August, new home sales fell 1.3% from the previous month.
Home sales had moved steadily higher for the past five months and the report came as a surprise considering the low interest rates.
Although the news served to improved the Treasury market, the realtors group said existing home sales are still up 6.1% for the year.
"Up and down the scale, the market improved on this news," Kenney said. "But there are still a bunch of numbers left to be released this week."
As for this week's numbers, consumer confidence for September will be released this morning and final gross domestic product for the second quarter will be released tomorrow. Leading indicators, the national purchasing managers' report, and factory orders will be released on Friday.
Traders also reported that a reduction of some of the tensions in Russia helped improve the general tone of the market.
Kenney said that as the tone of the market slowly improved, more and more investors joined the fray.
"The last time the bond sunk below the 6% level, we went down to about 5.85%," he said. "With that in mind, a lot of investors thought if they could get some paper at 6% in a market destined to fall to 5.90% or 5.85%, they'd grab it."
Kenney also said there is some healthy demand for Treasury paper now and the market was "ripe for an up day."
The government futures market may have been the biggest benefactor to the improved tone in the government market.
In Treasury futures, the December contract ended up 1 12/32 to 119.24.
In the cash markets, the 3 7/8% two-year note was quoted late yesterday up 3/32 at 100.05-100.06 to yield 3.77%. The 4 3/4% five-year note ended up 9/32 at 100.08-100.10 to yield 4.67%. The 5 3/4% 10-year note was up 26/32 at 103.15-103.19 to yield 5.27%. The 6 1/4% 30-year bond was up 1 6/32 at 104.05-104.09 to yield 5.94%.
The three-month Treasury bill was down one basis point at 2.92%, the six-month bill was down one basis point at 3.03%, and the year bill was down four basis points at 3.20%.Treasury Market Yields Prev. Prev. Monday Week Month3-Month Bill 2.96 2.99 3.076-Month Bill 3.09 3.14 3.191-Year Bill 3.30 3.38 3.342-Year Note 3.77 3.90 3.823-Year Note 4.06 4.21 4.155-Year Note 4.67 4.79 4.777-Year Note 4.86 4.98 5.0310-Year Note 5.27 5.43 5.4330-Year Bond 5.94 6.09 6.11Source: Cantor, Fitzgerald/Telerate