A dull session spent waiting for today's indicators left Treasury prices slightly lower late yesterday afternoon, with the 30-year bond off 1/4 point to yield 7.88%.

"We're simply here counting the days until the moment when the Fed decides to deliver," said Anthony Karydakis, a senior financial economist at the First National Bank of Chicago.

Mr. Karydakis called the Fed ease "a foregone conclusion."

"There is no doubt as to the need for them to ease again," he said. "Money supply is making an unconditional case for another easing, and it's been established recently that money supply is a major point of concern for the Fed."

The real question may be how the market will react to the easing.

Some traders argued yesterday that since the short end has fully priced in a 25-basis-point cut in

Treasury Market Yields

Prev. Prev.

Wednesday Week Month

3-Month Bill 5.09 5.13 5.31

6-Month Bill 5.21 5.25 5.44

1-Year Bill 5.26 5.34 5.53

2-Year Note 5.84 5.92 6.16

3-Year Note 6.11 6.17 6.44

4-Year Note 6.27 6.35 6.59

5-Year Note 6.79 6.87 7.07

7-Year Note 7.14 7.24 7.39

10-Year Note 7.44 7.49 7.59

15-Year Bond 7.72 7.78 7.85

30-Year Bond 7.88 7.91 7.91

funds and since supply is due next week when the Treasury auctions two- and five-year notes, short-term prices will deteriorate once the Fed makes its move.

"If you get an ease, the only trade I want to do is get short in anticipation of selling," a government note trader said.

But other traders said the short end could rally further because the market would immediately begin to price in the next Fed easing.

Mr. Karydakis suggested short-term prices would fall, but only slightly. "You're probably looking at a minor pull-back, because the name of the game is probably another ease down the road," he said.

The key numbers today are the September consumer price report and the money supply numbers. Economists surveyed by The Bond Buyer expect a 0.2% gain in September consumer prices, a 0.3% increase in the core rate, excluding food and energy prices, a 0.3% increase in the core rate, excluding food and energy prices, and another decline in the weekly M2 aggregate.

Among the other numbers comming out today, economists on average expect a 0.2% rise in last month's industrial product, an 80.1% capacity utilization rate, and a $5.1 billion August trade deficit.

Traders said teh market continued its recent pattern yesterday, with short-term prices supported because the market expects the Fed to loosen credit, and long-term paper trading heavily because of continued selling of Treasury Strips.

As the market hovers near its recent highs, some investors are taking the opportunity to pick up yield by moving out of the actively traded Treasury issues and into off-the-run paper, a government coupon trader said.

"People are going bargain-hunting," he said.

"People are going bargain-hunting," he said.

Yesterday's addition of reserves by the Fed was not a policy signal, just an attempt to push the funds rate back to the current 5 1/4% target.

Funds were trading at 6 1/8% when the Fed came in and got as high as 7% later in the session, as the usual pressures at the end of a maintenance period were exacerbated because some banks had postponed buying funds earlier in the period in hopes the Fed would ease.

The market barely reacted yesterday afternoon when the Treasury announced that next week's two-year and five-year issues would be smaller than expected.

The $13.5 billion of two-years is $500 million more than the Treasury sold last month, but less than the $14 billion the market expected. And the Treasury cut the five-year issue by $250 million to $9 billion.

The government said the size of two- and five-years, along with the $400 million cut in the weekly bill auction announced Tuesday, reflect the fact that spending for the thrift bailout has been less than expected.

Late yesterday, the when-issued two-year notes were quoted at 5.88% and the when-issued five-years were bid at 6.81%.

The December bond future contract closed 3/32 lower at 99 29/32.

In the cash market, the 30-year 8 1/8% bond was 7/32 lower, at 102 21/32-102 25/32, to yield 7.88%.

The 7 7/8% 10-year note fell 5/32, to 102 27/32-102 31/32, to yield 7.44%.

The three-year 6 7/8% note was off 3/32, at 101 28/32-101 30/32, to yield 6.11%.

Rates on Treasury bills were mixed, with the three-month bill two basis points lower at 4.97%, the six-month bill off one basis point at 5.02%, and the year bill one basis point higher at 5.01%.

Discount Reports Q3 Loss

Discount Corp. of New York, a primary dealer in Treasury securities, said yesterday it lost $4.2 million, or 52 cents a share, in the quarter ending Sept. 30. That compares with a loss of $1.2 million, or 15 cents a share, in the third quarter last year.

For the first nine months of the year, Discount reported an aftertax loss of $11.5 million, or $1.41 per share, which compates with a net loss of $1.5 million, or 18 cents a share, in the same period last year.

Discount also announced yesterday it will close its offices in Hong Kong and Tokyo at the end of the year. Discount still has a London office.

PSA's Agency Task Force

The Public Securities Association has put together a task force to examine how government agencies like the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association distribute their debt.

The Salomon scandal revealed improprieties in the market for such agency securities, with many firms in the agencies' selling groups reportedly inflating customer orders and falsifying their records. Earlier this month, 18 of the 25 members of Freddie Mac's selling group agreed to pay fines.

The PSA Agency Task Force, to be headed by Michael E. Dougherty, chairman and chief executive officer of Dougherty Dawkins Inc., and Thomas J. Healy, a partner at Goldman Sachs, will evaluate the current procedures for selling agency debt, suggest improvements, and clarify the rules, the PSA said.

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