Events in overseas trading gave the Treasury market a boost yesterday, but Treasuries lacked any real follow-through buying once North American trading got underway.
The 30-year bond closed up 8/32, to yield 5.81%.
Players spent the better part of the New York trading session monitoring price movements, as there was little impetus to establish new positions or square existing ones.
Trading primarily involved attempts by short-term day traders to create volatility in the market and force players to come in and protect their positions. A lack of fresh news or incentives to trade the market kept most long-term players at bay.
Treasuries improved during Tokyo session as a rally in the Japanese government bond market carried over into other fixed-income markets. According to traders of Japanese bonds, the JGB's benchmark 145 10-year issue closed yesterday's New York trading session at a new high price of 3.625.
But it was during the London trading session when Treasuries posted the bulk of the overnight gains. The dollar rallied against the German mark as a large corporate sell order ignited a selling spree, which propelled the U.S. unit to 1.65 against the deutschemark.
The strengthening of the dollar prompted foreign accounts to sell European bonds, particularly those issued by the German government, and purchase Treasury securities.
Tom Hutchinson, senior economist and currency analyst at MMS International, said the large sell order that began the selloff was said to have originated in Frankfort. That raised speculation that the German Bundesbank might decide to cut interest rates today, he said.
"Because the seller was dumping marks from Frankfort, it got speculation going about the German central bank's council meeting," Hutchinson said, noting that the meeting takes place today.
Despite a strong performance in overseas trading, Treasuries lacked any real follow-through buying once North American trading got underway. Prices traded steady to firmer in thin activity through the morning as a dearth of fresh news provided market participants with few reasons to enter the market.
"There was no data or news of consequence to move the market," said William Sullivan, director of financial markets research at Dean Witter Reynolds.
The 10-year note and the long bond outperformed other issues on the curve, supported by municipal defeasance and light retail buying. The positive inflation outlook and the strong performance by the Treasury market in recent sessions continued to underpin the market.
The market traded more on positive sentiment and expectations for the future than on actual fundamentals. Traders believe that growth in the U.S. will remain anemic and that the effects of upcoming health care reform and high taxes will put a drag on the economy.
Today's only economic release of significance is the Philadelphia Federal Reserve's index of business conditions. Beyond that, the market will keep an eye out for the release of durable goods orders and gross domestic product next year.
The Treasury Department announced slight increases in the volume of their monthly note auctions. The two-year note offering was hiked by $500 million to $16.5 billion, while the five-year offering was unchanged at $11 billion.
In futures, the September contract ended up 4/32 to 121.06.
In the cash markets, the 3 7/8 0/0 two-year note was quoted late yesterday down 1/32 at 100.02-100.03 to yield 3.82%, the 4 3/4 0/0 five-year note ended up 1/32 at 100.15-100.17 to yield 4.62%, the 5 3/4 0/0 10-year note was up 3/32 at 103.25-103.29 to yield 5.23%, and the 6 1/4 0/0 30-year bond was up 8/32 at 105.30-106.02 to yield 5.81%.Treasury Market Yields Prev. Prev. Wednesday Week Month3-Month Bill 3.05 3.03 2.966-Month Bill 3.13 3.11 3.131-Year Bill 3.26 3.22 3.362-Year Note 3.82 3.80 3.893-Year Note 4.06 4.06 4.165-Year Note 4.62 4.63 4.767-Year Note 4.79 4.81 4.9610-Year Note 5.23 5.26 5.4130-Year Bond 5.81 5.91 6.08 Source: Cantor, Fitzgerald/Telerate