While the stock market reached new highs for the second session in a row Friday, the Treasury market sank deeper into its holiday torpor.
Late in the afternoon, Treasury prices were narrowly mixed, with intermediate notes posting small gains and the 30-year bond off 1/8 point to yield 7.51%.
"It was deathly quiet," a short-term note trader said. "Most people have gotten to where they want to be for yearend."
Another note trader said the 10-year note was "the hottest item" in the market Friday.
"The few traders present want to go somewhat long, but are not too excited about going out to the 30-year bond," he said.
What little news there was Friday had only a modest impact on Treasury prices.
The long end edged a little lower late in the day when the Federal Reserve reported sizable gains in all three monetary aggregates.
A spokesman for the Federal Reserve Bank of New York reported at the ban's weekly press briefing that the nation's M1 money supply rose $3.3 billion, to $898.7 billion, in the week ended Dec. 16; the broader M2 aggregate gained $9.2 billion, to $3.4 trillion; and M3 surged $12.5 billion, to $4.2 trillion, in the same period.
Earlier in the session, the market ignored comments by Minneapolis Federal Reserve Bank President Gary Stern.
Mr. Stern said he expects a "modest" economic expansion next year, with gross domestic output growng 2% to 3%. He does not expect any "resurgence" in inflation.
Traders and analysts said this week's activity will start out slowly. Trading should be quiet today and tomorrow except for some end-of-the-year window dressing, although participants will be interested in what the Conference Board has to say this morning about how consumers were feeling during December.
But once the New Year begins, activity should pick up.
Traders and analysts are optimistic about further gains in intermediate and long-term securities, given the generally accepted scenario of modest economic growth and continued improvement in inflation.
But the short end may be stumied unless the Fed cuts rates again. Some participants think the Fed will shave another 25 basis points off the funds rate if the December employment report on Jan. 10 shows further job losses.
John Lonski, senior economist at Moody's Investors Service, said the bond market would probably remain in a trading range until it gets that December jobs report.
Prices might get some near-term direction from Thursday's weekly
Treasury Market Yields
Friday Week Month
3-Month Bill 3.93 3.75 4.46
6-Month Bill 4.01 3.94 4.55
1-Year Bill 4.14 4.08 4.66
2-Year Note 4.83 4.83 5.36
3-Year Note 5.11 5.16 5.73
4-Year Note 5.23 5.28 5.83
5-Year Note 6.00 6.03 6.47
7-Year Note 6.45 6.53 6.94
10-Year Note 6.81 6.95 7.36
15-Year Bond 7.23 7.62 7.70
30-Year Bond 7.51 7.57 7.93
Source: Cantor, Fitzgerald/Telerate
unemployment claims statistics and national purchasing managers' December index, he added.
At the long end, the 30-year has hit formidable resistance at 7 1/2%, and Maureen O'Toole, director of research at Rodman & Renshaw in Chicago, said that even with the good tone at the long end, the bond will have a hard time moving below that yield level.
"It needs a reason to break through 7 1/2%, and it has to be a big reason, either in the form of the next employment number or a big trimming back in the bond auctions," Ms. O'Toole said.
The March bond future contract closed 1/16 lower at 103 18/32.
In the cash market, the 30-year 8% bond was 3/32 lower, at 105 21/32- 105 25/32, to yield 7.51%.
The 7 1/2% 10-year note rose 3/16, to 104 24/32-104 28/32, to yield 6.81%.
The three-year 6% note was unchanged at 102 9/32 - 102 11/32, to yield 5.11%.
In when-issued trading, the 5% two-year note was steady at 100 9/32 - 100 10/32 to yield 4.83%, and the five-year 6 1/8% note was unchanged at 100 15/32 - 100 17/32 to yield 6%.
Rates on Treasury bills were mixed, with the three-month bill up three basis points at 3.85%, the six-month bill down two basis points at 3.89%, and the year bill two basis points lower at 3.98%.