After reacting wildly to the first reports of the Soviet coup Monday, the Treasury market settled down yesterday to see how the situation develops, leaving prices to drift aimlessly in thin trading.

But traders said the political turmoil in the Soviet Union and expectations of an imminent Fed easing were keeping a good bid under the market, especially at the short end.

By late in the day, the 30-year bond was up 1/4 point, where it yielded 8.08%, and short-term notes were 1/8 to 3/8 point higher.

Joseph Liro, a money market economist at S.G. Warburg, described yesterday's activity as "choppy."

"There's still a lot of tension in the market," Mr. Liro said. "There's too much uncertainty for people to make big bets."

He said the only sizable price declines occurred late in the morning after the Federal Reserve stayed out of the market.

The Fed's failure to intervene signaled there had been no change in monetary policy, and that disappointed some participants who thought Fed policymakers might vote for looser credit at yesterday's Federal Open Market Committee meeting.

Most participants are still expecting an ease sometime soon. Mr. Liro said the Fed might act on Friday, in the wake of what he expects will be weak money supply numbers Thursday and a weak July durable goods report Friday morning.

A government coupon trader pointed out that most of the market's gains yesterday occurred in overseas trading.

Prices close "right around where they opened" in New York, he said. "We were just grinding around" during the New York session.

Traders said they spent most of the day watching wire services and television to see what was happening in the Soviet Union.

The market did not lack for news reports, starting with speculation overnight concerning the whereabouts of ousted Soviet leader Mikhail Gorbachev. A report that he had returned to Moscow gave the long bond a boost in London.

By midmorning in New York, there were reports of tanks approaching the Russian Parliament, where Boris Yeltsin, the reformer nd Russian president, has remained since the coup. And during the afternoon, a few of the hardline officials on the emergency committee began to resign.

The note trader said most players preferred to put their money in the short end of the market because that area will benefit most if the Fed eases and because of the uncertain situation in the Soviet Union.

Even though the long end looks attractive to some participants because of the weak economy and hopes for lower inflation rates, "with the situation overseas, they're staying away" from bonds, the trader said.

Activity was minimal and retail investors were nowhere to be seen,

Treasury Market Yields

Prev. Prev.

Tuesday Week Month

3-Month Bill 5.25 5.44 5.75

6-Month Bill 5.35 5.62 5.98

1-Year Bill 5.44 5.76 6.27

2-Year Note 6.12 6.44 6.87

3-Year Note 6.54 6.81 7.30

4-Year Note 6.71 6.95 7.45

5-Year Note 7.21 7.43 7.93

7-Year Note 7.58 7.73 8.16

10-Year Note 7.79 7.90 8.29

20-Year Bond 8.04 8.14 8.43

30-Year Bond 8.08 8.16 8.48

Source: Cantor, Fitzgerald/Telerate

traders said. Also weighing on dealers were the securities that retail investors dumped on them after prices hit new highs on Monday.

Those securities, together with leftovers from the refunding auctions two weeks ago, moved back and forth between dealers yesterday, traders said, in what one described as "the hot potato trade."

The September bond futures contract closed 1/4 point higher at 97 19/32.

In the cash market, the 30-year 8 1/8% bond was 9/32 higher, at 100 11/32-100 15/32, to yield 8.08%.

The 7 7/8% 10-year note rose 1/4, to 100 14/32-100 18/32, to yield 7.79%.

The three-year 6 7/8% note was up 5/32, at 100 26/32-100 28/32, to yield 6.54%.

Rates on Treasury bills were lower, with the three-month bill down five basis points at 5.12%, the six-month bill off eight basis points at 5.15%, and the year bill three basis points lower at 5.18%.

More Woes for Salomon

Salomon Brothers suffered the defection of a major customer yesterday when the California Public Employees' Retirement System said it would not trade Treasuries with the firm until "all questions or impropriety have been resolved."

Since Salomon admitted it entered illegal bids in Treasury auctions, the firm's top three officials have resigned, and the Treasury, the Fed, the Securities and Exchange Commission, and the Justice Department all are investigating Salomon's bidding at auctions.

Calpers, as the system is known, is the largest pension fund in the nation. Its $64 billion of assets include $4 billion in U.S. government securities.

So far this year, the fund had done 16.7% of its Treasury trades with Salomon, said Basil J. Schwan, an assistant executive officer for Calpers.

Mr. Schwan said the fund would continue to do other types of trades with Salomon.

In other news the Salomon scandal threatened to spill over to other firms yesterday as The New York imes reported the Securities and Exchange Commission had written to the other 39 primary dealers to request documents about their trading activities.

According to the Times, the Treasury asked the firms to supply information relating to false bids, collusion, nd the parking of securities.

Also yesterday, Reuter's reported that an SEC filing by Salomon Inc., the parent firm of Salomon Brothers, revealed the New York Stock Exchange is also investigating Salomon and nine class action lawsuits have been filed against the firm.

There are rumors that other primary dealers are preparing to sue Salomon for the money they lost because of short squeezes engineered by the firm.

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