Neither the two-year note auction nor a few stronger-than-expected economic reports managed to stir the bond market from its lassitude yesterday, and prices ended narrowly mixed.
Late in the afternoon, the 30-year bond was up 1/16 to yield 8.50% and short-term notes were marginally lower.
All of yesterday's indicators supported the notion that the economy has begun to improve.
Durable goods orders rose 3.8% in May for the second monthly gain in a row, the Conference Board reported consumer confidence improved a little in June, and mid-June car sales came in at a 6.5 million annual pace, a little better than expected.
The number "are telling the same story everything else is telling us: We're making a bottom here in this quarter," said William Griggs, a managing director at Griggs & Santow Inc. "The market failed to respond because they have already priced it in."
He expects the long bond to remain in a "neutral position" at 8 1/2% until the market gets the answers to its current questions: how strong the recovery will be, whether it is sustainable, and what will happen to inflation.
Traders said the approach of quarter's end is helping to keep a lid on activity this week, along with anticipation of the June data that arrives next week.
Many investment managers have their portfolios where they want them to be when the current quarter ends Sunday. They see little reason to do anything until the third quarter starts next week.
Other participants would prefer to wait until they get a look at some June statistics next week before placing any more bets, traders said.
Traders were wary yesterday morning as the two-year auction approached, but enough investors and dealers showed up to make the auction a success.
The $12.5 billion of two-year notes were sold at an average yield of 7.06% and will bear a 7% coupon, up from the 6.81% average and 6 3/4% coupon at last month's sale.
There were fears that last month's short squeeze in the two-years might scare dealers away from the auction. But the results showed 2.97 bids entered for every security being sold, which is consistent with past two-year results.
The 7.06% average yield was a
Treasury Market Yields
Tuesday Week Month
3-Month Bill 5.73 5.77 5.55
6-Month Bill 6.01 6.05 5.85
1-Year Bill 6.34 6.36 6.07
2-Year Note 6.90 6.95 6.64
3-Year Note 7.38 7.39 7.04
4-Year Note 7.57 7.58 7.28
5-Year Note 7.96 7.94 7.66
7-Year Note 8.18 8.18 7.90
10-Year Note 8.32 8.31 8.05
20-Year Bond 8.50 8.51 8.28
30-Year Bond 8.50 8.51 8.28
Source: Cantor, Fitzgerald/Telerate
little higher than the 7.04% dealers estimated right after the auction, but better than the rumors about bids being awarded at 7.08% or 7.09% that circulated before the results were announced.
And after the results were announced, the when-issued two-years were bid higher. By late in the day, the yield had fallen to 7.04%.
"What you had was a better distribution of the securities this time and they're holding in okay," a coupon trader said.
The market faces another hurdle today, when the Treasury sells $9.25 billion of five-year notes.
A government note trader said the five-year auction might be the market's cue to fall apart, although he noted that the 8% yield on the when-issued notes is seen as a strong support level. The when-issued fives were quoted at 7.97% late yesterday.
"The five-years are a little more problematic, but it's such an attractive area, it will probably go well too," Mr. Griggs said.
The September bond future contract closed unchanged at 92 21/32.
In the cash market, the 30-year 8 1/8% bond was 1/16 higher, at 95 25/32-95 29/32, to yield 8.50%.
The 8% 10-year note fell 1/32, to 97 23/32-97 27/32, to yield 8.32%.
The three-year 7% note was down 1/32, at 98 30/32-99, to yield 7.38%.
Rates on Treasury bills were mixed, with the three-month bill steady at 5.58%, the six-month bill unchanged at 5.76%, and the year bill three basis points higher at 5.99%.
The Commerce Department said yesterday orders for durable goods rose 3.8% in May, double the 1.9% increase economists had forecast, and April's rise was revised up to 3.6% from the 3.0% reported last month.
The 11.5% jump in transportation orders led the improvement, but even excluding transportation, orders were up 1.4%.
"A lot of the strength was concentrated in the transportation industry, but even outside those zones, we had a good deal of strength," said David Wyss, chief financial economist at DRI/McGraw-Hill Inc.
Although durable goods is a volatile series, "this is two strong positives in a row," Mr. Wyss said. "I wouldn't take this as evidence that the manufacturing recession is over, but it's certainly good news for manufacturing."
Also yesterday, the Conference Board said its index of consumer confidence rose to 78.0 in June from a revised 76.4 reading in May.
And auto manufacturers reported mid-June sales came in at a 6.5 million pace. That is up from 6.3 million in early, June, but below the 6.7 million rate in mid-June last year.