Treasury prices ended a little lower yesterday as the unexpected strength shown in last Friday's durable goods report continued to weigh on the market.
Late in the day, the 30-year bond was off 1/4 point to yield 8.14%.
Trading was lackadaisical yesterday, as summer Mondays often are. Participants said this week may be particularly slow since, with Labor Day coming up this weekend, many traders have taken vacations.
"It's been sort of a dull session," said Jan Hurley, a senior market analyst at Chase Securities. "The market went south a little and just sat there for the rest of the day."
Traders said the small losses were a continuation of the big sell-off Friday, when the long bond dropped almost a point on the 10.7% surge in July durable goods orders.
The gain in durables, the largest in more than 20 years, suggested the recovery is sturdier than many economists had thought. After seeing the durables report, traders decided they would have to wait a little longer for any easing in Fed monetary policy.
Some traders had hoped the Fed would move last week; now many think it is possible the Fed will act in early or mid-September if the August employment report on Sept. 6 is weak enough.
Meanwhile, dealers must bid on a large quantity of new securities this week.
Yesterday's auction of $20.8 billion of bills went well enough, leaving
Treasury Market Yields
Monday Week Month
3-Month Bill 5.55 5.22 5.73
6-Month Bill 5.70 5.40 5.93
1-Year Bill 5.82 5.48 6.20
2-Year Note 6.41 6.18 6.82
3-Year Note 6.76 6.60 7.18
4-Year Note 6.88 6.77 7.31
5-Year Note 7.41 7.30 7.79
7-Year Note 7.73 7.63 8.04
10-Year Note 7.90 7.82 8.19
20-Year Bond 8.08 8.07 8.34
30-Year Bond 8.14 8.10 8.38
Source: Cantor, Fitzgerald/Telerate
today's sale of $12.5 billion of two-year notes and tomorrow's sale of $9.25 billion of five-years.
Potential problems include the big correction the market suffered on Friday and the Salomon situation, since these are the first coupon auctions to be held since the Treasury told Salomon it could only bid for itself, not for customers.
But yesterday traders sounded optimistic. Most said the notes offer attractive yields given the economic fundamentals.
Marcia Zercoe, a vice president at Provident Capital Management in Philadelphia, said she liked both the twos and fives, given the increase in yields, and decrease in price, that occurred last week.
"I like the short end now that it's backed up a lot," Ms. Zercoe said.
She cited the when-issued two-years, which traded at 6.45% late yesterday after yielding as little as 5.84% early last week when the attempted Soviet coup caused a big influx of cash into the short end of the Treasury market.
And investors can get another 100 basis points by extending out just three years, to the five-year notes, Ms. Zercoe added.
Ms. Hurley said the price of the when-issued twos may decline a little as the bidding deadline approaches this afternoon and dealers try to get a small concession.
This morning, the Conference Board will release its August survey of consumer confidence. Six economists surveyed by The Bond Buyer on average expect the survey to show confidence sagged to 77.1% this month, down from the 77.7% reading in July.
"If it's down as anticipated, consumer confidence may set a little better tone going into the auctions," Ms. Hurley said.
The September bond future contract closed 3/16 lower at 97 2/32.
In the cash market, the 30-year 8 1/8% bond was 1/4 lower, at 99 20/32-96 24/32, to yield 8.14%.
The 7 7/8% 10-year note fell 9/32, to 99 21/32-99 25/32, to yield 7.90%.
The three-year 6 7/8% note was down 1/32, at 100 7/32-100 9/32, to yield 6.76%.
Rates on Treasury bills were higher, with the three0month bill up three basis points at 5.41%, the six-month bill up two basis points at 5.48%, and the year bill two basis points higher at 5.51%.
The bond market ignored yesterday's only indicator, July existing home sales.
The National Association of Realtors reported the sale of previously owned homes dropped 6.5% in July, to an annual rate of 3.35 million units from the June pace of 3.59 million units.
The association pointed out that July's decline followed two months of gains. Existing home sales rose 1.4% in June and 6.0% in May.