Treasury prices rose slightly late yesterday as the market breathed a sigh of relief after getting through the seven-year note auction.
Late in the day, the 30-year bond was up almost 1/4 point to yield 8.50%.
The results showed the sale of $9 billion of seven-year notes went "okay," said Mitchell Held, chief financial economist at Smith Barney, Harris Upham & Co.
"People were expecting bad" results, Mr. Held said. "Okay was better than bad, so the market's a little higher."
A government bond trader said the small improvement in prices showed participants were relieved to have the supply out of the way.
After the results were announced, "when the dust settled and we were all still alive, the market got a better tone," he said.
The seven-year notes were auctioned at an average yield of 8.26% and will bear an 8 1/4% coupon, down from the 7.93% average and 7 7/8% coupon at the last seven-year sale in April.
Traders expected the notes to come at an average of 8.25% and then tail back to 8.26%. Instead, both the average and the stop, or high yield, were at 8.26%.
Mr. Held said the lack of a tail was "encouraging," while the lack of retail interest and the below-average ratio of bids to the size of the issue were negative signs.
Participants said arbitrage traders, who look for disparities in the yield curve, bought seven-years because the notes are cheap compared with other things near them on the curve.
Once the auction results were announced, some retail investors showed up to buy securities in the secondary market, traders said.
A coupon trader speculated that
Treasury Market Yields
Wednesday Week Month
3-Month Bill 5.72 5.71 5.71
6-Month Bill 5.93 5.92 6.05
1-Year Bill 6.24 6.36 6.39
2-Year Note 6.91 6.96 7.04
3-Year Note 7.36 7.34 7.43
4-Year Note 7.55 7.49 7.63
5-Year Note 7.97 7.91 7.99
7-Year Note 8.21 8.12 8.21
10-Year Note 8.32 8.23 8.34
20-Year Bond 8.51 8.41 8.54
30-Year Bond 8.50 8.41 8.54
Source: Cantor, Fitzgerald/Telerate
investors wanted to get long ahead of Friday's producer price report, which is expected to be good for the bond market.
"They got it back to an 8.25% coupn, which seemed to be an area of interest," he added.
Another trader suggested accounts had established short positions expecting the auction to be a disaster and came in to cover those shorts when the market failed to make new lows.
By late in the afternoon, the price on the when-issued sevens had risen enough to push the yield down to 8.22%.
The market paid no attention to the Senate Banking Committee's approval of Lawrence Lindsey's nomination as Federal Reserve governor and current governor David Mullins's nomination to serve as the board's vice-chairman.
Participants said the only news out of Washington likely to move bond prices would be the Bush administration's announcement that it was reappointing Alan Greenspan as Fed Chairman. Mr. Greenspan's current term expires in early August.
President George Bush seemed to be hinting at such a move yesterday when he told reporters, "I have a very high regard for him, and I want to announce a decision on that very soon."
Economic news will be sparse today, with initial jobless claims for the week of June 29 to be released this morning and money supply figures coming out in the afternoon.
Analysts expect initial claims to decline again from the 423,000 reported in the week of June 22, with forecasts ranging from 403,000 to 420,000.
The September bond futures contract closed 3/16 higher at 92 25/32.
In the cash market, the 30-year 8 1/8% bond was 3/16 higher, at 95 23/32-95 27/32, to yield 8.50%.
The 8% 10-year note rose 1/8, to 97 22/32-97 26/32, to yield 8.32%.
The three-year 7% note was up 1/16, at 99-99 2/32, to yield 7.36%.
Rates on Treasury bills were lower, with the three-month bill down three basis points at 5.57%, the six-month bill down one basis point at 5.69%, and the year bill three basis points lower at 5.89%.