Long-term Treasury prices fell last week as the nation's capital reverberated with politicians' calls for tax cuts, and analysts said the prospect of budget-busting legislation could cast a pall over the bond market for weeks to come.

The long bond had already taken a beating the week before last when the market got an unfriendly inflation number. And last week, the possibility that a federal tax cut could worsen inflationary pressures and add to the already abundant supply of Treasury securities banished the 30-year north of the 8% yield level.

Sam Kahan, chief economist at Fuji Securities, said the market might have overreacted to the tax cut proposals. He pointed out that the sell-off was based on two assumptions: Tax cuts would be enacted and they would add to the deficit.

"It's not clear whether the proposal to cut taxes is for real or just political posturing," Mr. Kahan said. And even if tax cuts are enacted, he said, it is possible legislators would work out a way to offset their effect on the bottom line by reducing spending or raising other taxes.

Hopes for revenue-neutral tax cuts got some support Friday when President Bush said he would not approve any cuts that violated the budget agreement. His statements gave brief boost to long-term Treasury prices.

Lynn Reaser, a senior economist at First Interstate Bank, said the bond market could improve later this week if Friday's October employment numbers are weak, as most analysts expect, and the Fed decides to ease again.

"But we would have seen [the bond market] lower without all these tax cut initiatives," Ms. Reaser said. "The gains we had looked for, with the potential for a 7 1/2% long bond, have been to some extent precluded by this latest round of discussions in Washington."

Mr, Kahan predicted the long bond will trade between 7.95% and 8.10% as the market heads into this Friday's October employment report. Over the long term, the 30-year could mov to 8 1/4%, or even higher, if Congress passes a tax-cut bill that adds to the deficit, or it could return to 7 3/4% if the legislation is revenue-neutral.

The market gets a slew of indicators this week, but the big numbers are tomorrow's report on third-quarter gross national product and Friday's jobs data.

The gross national product report is expected to show a gain of about 2.5%, and it has been getting a fair amount of attention as the first positive number after three quarters of contraction.

But Mr. Kahan said the market's focus on the economy's future direction would make the GNP statistics less relevant than ever.

Instead, traders will be watching the numbers that show how the economy started off the fourth quarter, and especially Friday's employment report.

Most economists are forecasting increases of 25,000 to 50,000 in October nonfarm payrolls, in line with the 24,000 gain in September.

Ms. Reaser said that kind of report would result in another 25-basis-point reduction in the funds rate, and some improvement in bond prices.

Friday's Trading

Long-term Treasury prices posted small losses Friday after late-day profit-taking erased the gains made when President Bush said he would only approve tax cuts that fit within the budget accord.

The 30year bond closed 1/4 point lower, where it yielded 8.04%.

Traders noted that prices were stuck in a narrow range all day and moved choppily within that range.

During the afternoon, "buying dried up and guys decided to get out," an agency security trader said.

A lot of the five-year notes auctioned Thursday were still sitting on dealers' shelves Friday, and that supply weighed on the market's spirits.

Bills and short-term notes performed better than the long end, as the sluggish indicators earlier last week kept alive traders' hopes for another easing. Short-term traders were also keeping an eye on the stock market as it declined for the second session in a row Friday.

A note trader said there was a good bid for short-term paper. "They love it because the Fed's going to ease."

The December bond future contract closed 1'4 lower at 98 4/32.

In the cash market, the 30-year 8 1/8% bond was 3/16 lower, at 100 25/32-100 29/32, to yield 8.04%.

The 7 7/8% 10-year note fell 7/32, to 101 9/32-101 13/32, to yield 7.66%.

The three-year 6 7/8% note was down 1/32, at 101 20/32-102 22/32, to yield 6.20%.

In when-issued trading, the 6% two-year note was up 1/32, at 100 3/32-100 4/32, to yield 5.93%, which is down from the 6.01% average at Wednesday's auction. But the 6 7/8% five-year note auctioned Thursday at 6.92% was still trading at a loss; late Friday, the when-issued notes were off 1/16, at 99 19/32-99 21/32, to yield 6.95%.

Rates on Treasury bills were lower, with the three-month bill down three basis points at 4.96%, the six-month bill off two basis points at 5.03%, and the year bill one basis point lower at 5.04%.

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