Investors stayed bullish Friday despite a stronger than expected durable goods report, and market watchers predicted this week could test the 7.5% level on the long bond.
The 30-year bond finished the New York session Friday off 3/8 point, to yield 7.56%, but it was well off its lows for the day by the close.
Profit takers brought the market down more than 1/2 point before the durable goods report, trying to book gains that developed earlier last week when unemployment statistics indicated continuing sluggishness in the economy.
When the Commerce Department reported durable goods orders in June rose 2.3%. to $122.5 billion, the market dropped further. New orders which were expected to rise only about 0.8%, are at their highest level since 1991. Excluding defense, they were up 1.6%, to $115.6 billion.
Even though the figure was higher than expected, Steven Wood, director of financial markets research at Bank of America.pointed out the increase only reversed a decline recorded in May.
In addition, he said, durable goods orders over the past 11 months have been virtually flat, and when inflation is factored into the figures they actually show a decline.
"So there's not a lot of incentive for the manufacturing sector to grow very vigorously," Mr. Wood said.
Investors gradually came to the same conclusion Friday, and the long bond retraced much of the ground lost in the morning.
On tap for this week is tomorrow's release of July consumer confidence levels, which will be watched closely for signs of where the economy might be headed, as will Thursday's gross domestic product figure for the second quarter.
But Dana Johnson, head of market analysis for First Chicago, said this week's slate of indicators is not important enough to move market sentiment significantly.
"The market's really focused on what kind of reaction might develop from the most recent [Federal Reserve] ease, and these numbers won't tell you much about that," Mr. Johnson said.
July employment, housing, and durable goods are the key factors for that analysis, he said.
"It's so important to find out whether the dismal [employment] report for June is real or not," Mr. Johnson added, referring to last month's 117,000 drop in nonfarm payrolls. Some economists have speculated that the big decrease might be attributable to improper accounting of seasonal factors.
Although the key July employment numbers will not be released until late next week, some market watchers said the long bond could test 7.5% this week.
But breaking through that resistance level will be difficult unless consumer confidence and gross domestic product come in very favorable for the market, Mr. Wood said.
The last time the long bond closed below 7.5% was in early January.
One trader agreed Friday that the profit taking and unfavorable durable goods numbers were not enough to overcome the market's bullish sentiment. "It still feels like there's an underlying bid at lower levels," so prices are likely to find support, he said.
Late Friday, the when-issued two-year note was bid at 4.28%, and the when-issued five-years were quoted at 5.68%
The September bond futures contract closed 9/32 lower at 103.21.
In the cash market, the 30-year 8% bond was 3/8 lower, at 104 31/32-105 3/32, to yield 7.56%.
The 7 1/2% 10-year note fell 6/32, to 105 12/32-105 16/32, to yield 6.72%.
The three-year 5 7/8% note was also down 6/32, at 103 3/32-103 5/32, to yield 4.65%.
Rates on treasury bills were mixed, with the three-month bill unchanged at 3.17%, the six-month bill up one basis point at 3.25%, and the year bill six basis point higher at 3.43%.
Treasury Market Yields
Friday Week Month
3-Month Bill 3.21 3.21 3.70
6-Month Bill 3.32 3.29 3.83
1-Year Bill 3.54 3.47 4.10
2-Year Note 4.19 4.22 4.88
3-Year Note 4.65 4.72 5.35
5-Year Note 5.63 5.79 6.32
7-Year Note 6.18 6.37 6.72
10-Year Note 6.72 6.89 7.13
15-Year Bond 7.08 7.24 7.44
30-Year Bond 7.53 7.67 7.77
Source: Cantor, Fitzgerald/Telerate