Treasury prices seesawed yesterday in active trading a dealers tried to distribute the new seven-year notes amid continued speculation about a Fed easing.

Late in the day, prices were near the session highs, with short- and intermediate-term notes up 1/8 to 3/8 point and the 30-year bond up 3/8 point to yield 7.44%.

Yesterday's gains followed two days of losses caused by the market's disappointment over not getting the widely anticipated easing in Federal Reserve monetary policy, and by the downward pressure from the Treasury's sale of seven-year notes.

Prices began to rise overnight in Tokyo, where investors reportedly found the lower prices levels attractive. The market added to those gains in early New York trading as rumors circulated that Federal Reserve Chairman Alan Greenspan had been authorized to cut rates and that a discount rate cut would occur yesterday.

When there was no signal from the Fed by midday, the market gave back all its earlier gains, only to rebound during the afternoon.

Jan Hurley, senior market strategist at Chase Securities, argued that the bond market had overreacted and declined too much earlier in the week.

"I think the market just got oversold," she said. "Just because the Fed hasn't eased yet doesn't change the underlying fact that the economy is weaker than it seemed a month ago."

"You can't keep trashing [the market], it gets to the level where you have to see some value," Hurley added.

Traders said some participants, both retail and professional, came to that conclusion yesterday.

They said the market was also buoyed by continued talk that the German Bundesbank might decide to lower its interest rates, which would clear the way for a U.S. rate cut.

A bond salesman said Treasury prices should stabilize in the days ahead. He expects the market to remain "trading-range oriented," and said the correct strategy would be to buy when the market approaches the low end of the range.

"The fact of the matter is the economy's stagnating, and when you get a 30 basis point rise in interest rates, that's been a great buy -- just look at the charts," the salesman said.

The big price swings yesterday seemed to have little to do with the day's economic news, which included jobless claims and September chain store sales.

The market dipped only briefly when the government reported a bigger-than-expected drop in claims.

The Labor Department said new filings for unemployment insurance fell 24,000, to a seasonally adjusted 400,000, in the week ended Sept. 26, when economists expected a decline of only 5,000.

New filings under the federal emergency program fell 4,261, to an unadjusted 20,070, in the same week, and in the previous week the total number of people receiving state benefits fell 99,000, to 3.181 million.

But Anthony Chan, senior economist at Barclays de Zoete Wedd Securities, said the claims numbers were not as strong as they looked on the surface.

When the filings for federal benefits are seasonally adjusted and added back in, new claims for the week total 425,000, which is "still significantly high," Chan said.

Chan said the bond market did not seem to be paying attention to the chain store sales reports coming over wire services, which he characterized as "very strong."

Michael Niemira, a business economist at Mitsubishi Bank, calculated that September chain store sales were up 1% from August and showed a 7.7% year-over-year gain.

Late in the day, a spokesman for the Federal Reserve Bank of New York reported at the bank's weekly press briefing that the nation's M1 money supply rose $100 million, to $991.6 billion, in the week ended Sept. 28; the broader M2 aggregate dropped $1.8 billion, to $3.5 trillion; and M3 dropped $7.2 billion, to $4.2 trillion, in the same period.

The December bond futures contract closed 11/32 higher at 104 9/32.

In the cash market, the 7 1/4% 30-year bond was 3/8 higher, at 97 17/32-97 21/32, to yield 7.44%.

The 6 3/8% 10-year note rose 3/8, to 99 25/32-99 29/32, to yield 6.38%.

The three-year 4 5/8% note was up 7/32, at 100 30/32-101, to yield 4.24%.

Treasury Market Yields

Prev. Prev.

Thursday Week Month

3-Month Bill 2.82 2.63 2.95

6-Month Bill 2.95 2.80 3.00

1-Year Bill 3.03 2.94 3.15

2-Year Note 3.80 3.68 3.81

3-Year Note 4.24 4.13 4.30

5-Year Note 5.34 5.20 5.24

7-Year Note 5.97 5.75 5.80

10-Year Note 6.38 6.23 6.30

30-Year Bond 7.44 7.31 7.24

Source: Cantor, Fitzgerald/Telerate

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