Treasury prices ended with small gains yesterday as the market took in stride the news of another record quarterly refunding.

Late yesterday, the 30-year bond was up 3/8 point, to yield 8.33%.

Prices moved higher during the morning as the government released a couple of favorable economic reports and rumors circulated that the Federal Reserve might cut the discount rate.

The short end got a bid during the afternoon when a congressman set off a flight to quality when he described Citicorp as "technically insolvent."

And long-term prices held onto their earlier gains after the Treasury announced it will sell $38 billion of notes and bonds at next week's refunding auctions, $1 billion more than the previous record of $37 billion sold at the May refunding.

The $38 billion of securities will refund $21.6 billion of maturing paper and raise $16.4 billion of new cash for the government.

The auctions include $14 billion of three-year notes Tuesday, $12 billion of 10-year notes Wednesday, and $12 billion of 30-year bonds Thursday.

"The market's definitely in an optimistic mood, and not worried about the refunding," said William Griggs, a managing director at Griggs & Santow Inc.

Mr. Griggs said the better mood dated back to last week's weaker-than-expected durable goods report for June.

Before that number, the market was worrying about the strength of the economy, and the long bond was stuck around an 8.5% yield, he said.

"Then it decided on the basis of the durables number that things aren't that bad and adjusted down to the 8 3/8 level" on the bond, he said.

But the market's rosy tone will be vulnerable if today's July purchasing managers' report or tomorrow's July employment data show bigger gains than expected, Mr. Griggs said.

Earlier yesterday, the market got another batch of indicators that showed the economy was improving, but at a slow pace.

June leading indicators rose 0.5%, a little below the consensus forecast of a 0.7% gain.

The leading indicators "have been up for five months in a row, so they're pointing to continued growth in the economy," said Paul Kasriel, a monetary economist at Northern Trust Co.

Later, the Commerce Department reported June factory orders fell 1.4%.

Economists expected factory orders to fall about 0.8%, led by the 1.6% decline in June durables orders reported last week. But it turned out that the demand for nondurable goods was as lackluster as that for durables.

In addition to the 1.4% drop in June, the May increase was revised down to 2.3% from 2.9% rise reported

Treasury Market Yields

Prev. Prev.

Wednesday Week Month

3-Month Bill 5.67 5.73 5.71

6-Month Bill 5.89 5.94 5.92

1-Year Bill 6.13 6.22 6.36

2-Year Note 6.77 6.87 6.96

3-Year Note 7.08 7.24 7.34

4-Year Note 7.24 7.39 7.49

5-Year Note 7.73 7.85 7.91

7-Year Note 7.98 8.08 8.12

10-Year Note 8.13 8.22 8.23

20-Year Bond 8.29 8.36 8.41

30-Year Bond 8.33 8.41 8.41

Source: Cantor, Fitzgerald/Telerate

last month.

Steve Ricchiuto, an economist at Barclay de Zoete Wedd government Securities, pointed out that the decline in nondurable orders reverses about half of May's increase.

In general, the factory orders report supports the notion that the economy "is not going to get out of hand to the upside," he said.

Also yesterday, the Purchasing Management Association of Chicago said its index rose to an unadjusted 48% in July, up only a bit from the 47.8% level in June. A reading below 50% signals a contracting economy.

But Mr. Kasriel said on a seasonally adjusted basis, the index came in at 50.7%, up from 47.6% in June, which signals a growing economy, and added that the purchasing managers groups in Milwaukee and Detroit yesterday also reported gains in July.

The Milwaukee index rose to 53% in July from 50% in June, and the Detroit index jumped to 57.2% in July from the 54.3% June reading.

In other news, Rep. John Dingell, D-Mich., rattled the short end of the market yesterday when he said Citibank was "technically insolvent" because it had lost so much money trying to enter the securities business overseas.

Citicorp called Rep. Dingell's statement "irresponsible and untrue," and FDIC Chairman William Seidman said the bank was solvent.

But the denials did not calm the market, and Treasury bill prices were higher late yesterday afternoon.

A bill trader said market participants were already nervous because of the problems being seen in the insurance industry.

And the remark about Citibank was especially worrisome because of its size, he said. "If Citicorp's got problems, so does everyone else."

The September bond future contract closed 11/32 higher, at 94 27/32.

In the cash market, the 30-year 8 1/8% bond was 13/32 higher, at 97 18/32-96 22/32, to yield 8.33%.

The three-year 7% note was up 3/16, at 99 23/32-99 25/32, to yield 7.08%.

In when-issued trading, the three-year stood at 7.15%, the 10-30-year was quoted at 8.14%, and the 30-year was trading at 8.33%.

Rates on Treasury bills were higher, with the three-month bill down three basis points, at 5.52%; the six-month bill four basis points lower, at 5.65%;, and the year bill down five basis points, at 5.79%.

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