Treasury prices improved a little yesterday, with notes and bonds responding to signs of economic weakness and the short end benefiting from the Federal Reserve's purchase of bills.
By late yesterday, the 30-year bond was up 1/8, to yield 7.44%, and note prices were 1/8 to 1/4 point higher.
The bond market began to move higher early in the New York session after IBM Corp. said it planned to reduce its global manufacturing capacity, cut capital spending, and reduce its payrolls by 25,000 in 1993. The company will take a $6 billion charge in 1992 to pay for the cutbacks.
President-elect Bill Clinton cited the IBM restructuring as an example of the United States' continuing economic problems.
The rest of the day's economic news was mixed, but traders said the most notable feature of yesterday's session was the market's lack of interest in most of the day's news.
"The year is basically over," a bond trader said. "I think the market will stay in a narrow range."
"We've been in this very quiet trading mode for the last week or two," said Steve Slifer, a money market economist at Lehman Brothers. "We go up, we go down, but we really have gone no place, and activity is pretty thin."
Slifer said participants are convinced that the Federal Reserve is not about to change monetary policy in either direction.
Since people do not expect any big chance in rates, there is little reason for them to place big bets, especially with yearend fast approaching, he said.
"I don't see anything that will break us out of this lethargy until we get beyond the end of the year." Slifer added.
In another favorable development for the bond market, the Johnson Redbook said department store sales fell 5% on a seasonally adjusted basis during the first two weeks of December. The report blamed the poor performance on last week's bond weather.
But the report also showed that sales during the period were up 4.2% from the same period last year.
At the same time, manufacturers reported selling more cars in early December than economists expected.
With all manufacturers except Chrysler having reported their early-December sales, economists say cars were selling at an annual rate of 6.5 million during the first 10 days of the month. That was better than the consensus forecast for a 6.2 million pace.
A big bond deal in the corporate market seemed to interest Treasury traders more than yesterday's economic news.
The Tennessee Valley Authority sold $1 billion of 30-year bonds competitively yesterday morning. The bonds were priced at a 7.91% yield, 45 basis points above the yield on the Treasury 30-year.
Traders said there were reports that TVA bonds were moving slowly, and the Treasury long bond came off its highs at midday because the dealers underwriting the deal had hedged some of their inventory in the Treasury market.
The bill sector got a boost early yesterday afternoon when the Federal Reserve announced a bill pass, in which it buys a bills permanently for its account to add reserves to the monetary system.
Trades said they had not expected the pass but added that the Fed had been "unaggressive" in its purchases.
Traders expect an equally subdued session today, despite the release of statistics on November industrial production and housing starts and the Treasury's announcement of the sizes of next week's two- and five-year note auctions.
The March bond futures contract closed 1/32 higher, at 103 29/32.
In the cash market, the 7 5/8% 30-year bond was 6/32 higher, at 102 1/32 - 102 5/32, to yield 7.44%.
The 6 3/8% 10-year note rose 7/32, to 96 30/32 - 97 2/32, to yield 6.79%.
The three-year 5 1/8% note was up 7/32, at 99 22/32 - 99 24/32, to yield 5.21%.
Rates on Treasury bills were lower, with the three-month bill down four basis points,a t 3.22%, the six-month bill off two basis points, at 3.41%, and the year bill seven basis points lower, at 3.63%.
Treasury Market Yields
Tuesday Week Month
3-Month Bill 3.27 3.31 3.20
6-Month Bill 3.49 3.41 3.46
1-Year Bill 3.76 3.60 3.64
2-Year Note 4.70 4.54 3.60
3-Year Note 5.21 5.08 5.14
5-Year Note 6.09 5.97 6.03
7-Year Note 6.45 6.34 6.44
10-Year Note 6.79 6.71 6.82
30-Year Bond 7.44 7.43 7.53
Source: Cantor, Fitzgerald/Telerate