Traders passed another uneventful session yesterday, biding their time until the New Year brings customers back into the market.
The long bond lost almost 1/2 point at the start of the New York session and stayed at those levels for the rest of the day. It finished off to yield 7.39%.
Market sources had little explanation for why prices have softened since last week's rally, but most said the extremely thin holiday-week trading was probably exaggerating price swings. In addition, they said, the lack of retail customers is keeping other would-be participants sidelined as well.
Jerry Zukowski, an economist at PaineWebber Inc., said there is potential for some price movement as numbers come out later in the week, "but I don't think anyone will want to,make any large trading decision when the market's this thin."
Steven Ricchiuto, chief economist at Barclays de Zoete Wedd Securities, said the long bond is suffering "because retail is not in the market and traders are saying, ~I don't want to be long if there's no retail.'"
Ricchiuto said retail investors will probably be absent for the rest of the week, so prices are likely to fall more.
"We could be back to 7 1/2% [on the long bond] pretty easily" by the end of this week, and "by the end of January, we could be right back up to 7 3/4%," he said.
Ricchiuto said yields would come under pressure in January because the economy will be looking better and because people will start worrying about supply.
In addition, he said there may be some unpleasant inflation news related to the absence of the usual heavy discounting in retail stores after Christmas.
Although some stores offered discounts, he said, "we didn't see the huge markdowns of recent years that are now expected in seasonal factors. Basically, in the last couple of years it was fire-sale time."
If January's consumer price index excluding food and energy edges higher at a time when the market is starting to worry about new supply, that is all it would take to push prices lower, Ricchiuto said.
In other action yesterday, the Treasury auctioned $12.4 billion of new 13-week bills at an average rate of 3.22%. up from last week's 3.16%. Another $12.42 billion of 26-week bills came at an average rate of 3.38%, up from 3.32% last week.
In when-issued trading, the 4%% two-year note was 1/16 lower, at 99.30-99.31 to yield 4.64%. and the five-year 6% note was off 5/32, at 99.22-99.24 to yield 6.05%.
The March futures contract, closed 14/32 lower, at 104 21/32.
In the cash market, the 7 5/8% 30-year bond was 14/32 lower, at 102 20/32-102 24/32, to yield 7.39%.
The 6 3/8% 10-year note was off 9/32, at 97 17/32-97 21/32, to yield 6.70%.
The three-year 5 1/8% note was down 1/8, at 99 31/32-100 1/32, to yield 5.11%.
Rates rose on Treasury bills, with the three-month bill up one basis point, at 3.18%, the six-month bill four basis points higher, at 3.35%, and the year bill up three basis points, at 3.50%.
Today's only indicator, the Conference Board's report on December consumer confidence, is expected to rise to 71.9 from the 65.5 November reading.
Treasury Market Yields
Monday Week Month
3-Month Bill 3.22 3.23 3.33
6-Month Bill 3.43 3.42 3.56
1-Year Bill 3.62 3.66 3.80
2-Year Note 4.64 4.60 4.79
3-Year Note 5.11 5.13 5.34
5-Year Note 6.05 6.04 6.21
7-Year Note 6.40 6.37 6.58
10-Year Note 6.70 6.69 6.92
30-Year Bond 7.39 7.38 7.59
Source: Cantor, Fitzgerald/Telerate