The Treasury market ignored some unfavorable economic statistics yesterday and prices ended unchanged to slightly higher, with the short end outperforming the rest of the yield curve.
Late yesterday afternoon, the 30-year bond was 1.8 point higher and yielded 8.50%. Short-term notes were also up 1/8 point.
Both the April merchandise trade report and the Federal Reserve's "beige book" were consistent with other recent statistics showing the economy has begun to improve. But traders said there was no new information in the releases.
Treasury Market Yields
Wednesday Week Month
3-Month Bill 5.72 5.71 5.60
6-Month Bill 6.01 6.05 5.88
1-Year Bill 6.31 6.36 6.10
2-Year Note 6.88 6.97 6.75
3-Year Note 7.33 7.38 7.08
4-Year Note 7.56 7.57 7.30
5-Year Note 7.92 7.94 7.70
7-Year Note 8.17 8.16 7.92
10-Year Note 8.31 8.27 8.06
20-Year Bond 8.50 8.47 8.26
30-Year Bond 8.50 8.47 8.27
Source: Cantor, Fitzgerald/Telerate
"Since there wasn't much news, the market's been gyrating around the same prices," a government bond trader said.
Yesterday morning, the Commerce Department reported the April merchandise trade deficit widened to $4.78 billion from the $4.07 billion March gap.
Analysts said the increases in both exports and imports was another sign of the turnaround in the economy. Exports rose 4.5% in April, to a record $35.56 billion, and imports were 5.9% higher at $40.35 billion.
The rise in imports implies better-than-expected domestic demand, and strong exports will fuel U.S. manufacturing.
"Even though the deficit actually rose a bit, the conclusions one can draw from both the import and export figures are bullish for the economy and bearish for the bond market," said Lawrence Krohn, a senior economist at Lehman Brothers.
Mr. Krohn said he was surprised at the strength in exports, since many economies abroad are either slowing or in recessions. "The weakness of the dollar relative to its peak at mid-decade has probably made the U.S. more competitive than some of us had realized," he said.
Later, the market got another upbeat message from the Federal Reserve's beige book, which said "economic conditions appear to be improving modestly in much of the nation."
That is a much cheerier assessment than the previous report in early May, which said activity "remained weak."
The beige book, which is compiled from reports from the 12 district Fed banks, cited signs of strength in retail sales, manufacturing, and home sales.
But Anthony Karydakis, a senior economist at First Chicago, said the optimistic comments in the Fed report book were all qualified.
"It's striking how cautious the tone of the overall report is," Mr. Karydakis said. "It definitely doesn't challenge the view that the recovery that seems to be getting underway will be a slow and unimpressive one."
The market also was unperturbed by the details of next week's auctions.
The Treasury announced yesterday afternoon that it will sell $12.5 billion of two-year notes next Tuesday, a $250 million increase from May's two-year auction, and $9.5 billion of five-year notes next Wednesday, unchanged from the five-year sale in May.
In fact, the current two-year improved after the auction announcement, but traders said some of the bid reflected the short squeeze in the current two-year.
That situation makes it expensive to borrow the two-year notes, which discouraged participants from selling the current issue and moving into the when-issued two-year, traders said.
Late yesterday, the when-issued two-year was quoted at 6.96%, far cheaper than the 6.8% yield on the current two-year.
Bill prices got a boost from the losses in the stock market yesterday and from reinvestment of the $7 billion cash management issue maturing today, a bill trader said.
The Dow Jones Industrial Average closed 31.31 points lower, at 2,955.50.
The only news today is the weekly jobless claims figure.
Last week, claims fell 38,000, to 401,000, and "people would like to see a full offset of the decline," Mr. Karydakis said.
Six analysts surveyed by The Bond Buyer on average expect claims to rebound 27,000, to 428,000.
The September bond future contract closed 1/32 higher, at 92 20/32.
In the cash market, the 30-year 8 1/8% bond was 1/8 higher, at 95 26/32-95 30/32, to yield 8.50%.
The 8% 10-year note was unchanged at 97 25/32-97 29/32, to yield 8.31%.
The three-year 7% note was up 5/32, at 99 2/32--99 4/32, to yield 7.33%.
Rates on Treasury bills were lower, with the three-month bill down five basis points at 5.57%, the six-month bill off four basis point at 5.76%, and the year bill down four basis points at 6.31%.
Raphael de la Gueronniere was elected chairman of the board and chief executive officer of Discount Corp. of New York, a primary dealer of government securities, the firm said yesterday.
He will replace Edward Sawicz, who resigned in April.
Mr. de la Gueronniere, 38 currently is a managing director at William E. Simon & Sons.
Previously, he worked for four years at Paine-Webber Inc., where he headed fixed-income trading. He started his career at Mogan Guaranty Trust Co., where he worked for 11 years.
Also yesterday, Discount Corp. announced a dividend of 10 cents per share, matching the dividend announced last June.