The Treasury market bounced back to close almost unchanged yesterday after a wave of position squaring pushed prices lower in the morning.

Late in the afternoon, the 30-year bond was just 1/32 lower to yield 6.67%.

On Monday and Tuesday; the long bond closed at 6.66%, its lowest closing yield since the government began to sell 30-year bonds regularly in 1977.

Traders said some investors were nervous about going into Friday's June employment report at such lofty levels and decided to lighten their positions yesterday morning. That selling, combined with some hedging by corporate: dealers, pushed the 30-year bond a half point lower by midday.

But the market recovered as the futures session drew to a close when some participant bought paper to cover short positions. A coupon trader said yesterday's delivery on June futures contracts may have inspired some of the short covering:

Traders said yesterday's price swings occurred in thin trading, with most participants sidelined ahead of the jobs report. Earlier in the week, portfolio managers window-dressing efforts provided some business, but even that has dried up now that the fiscal quarter has ended, the coupon trader said.

Anthony Karydakis, senior financial economies at the First National

Bank of Chicago, said yesterday's recovery demonstrated the bond market's underlying strength. "Clearly the long end seems to be very well-positioned to push higher in the next week or two," he said

The market has moved steadily higher in recent weeks as economic statistics showed that growth remained weak, inflation was still under control, and the Federal Reserve was not likely to raise short-term rates.

Another factor supporting the Treasury market this week has been the expectation that Friday's employment number will be favorable.

Given the string of recent reports showing economic weakness, some economists have revised down their forecasts for June payrolls. For example, First Chicago economists now think only 50,000 to 70,000 jobs will be added to June nonfarm payrolls. down from their original forecast of a 150,000 increase.

The Bond Buyer's survey of 25 economists still shows an average forecast of a 130,000 increase in payrolls.

Karydakis said the market will be happy with any number that is significantly weaker than the 209,000 gain posted in May.

"I don't think people are fixated on a certain number, as long as the number is below the most recent trend and is viewed as nonthreatening," he said.

Traders said yesterday's economic indicators had little impact on the bond market.

May factory orders fell 1.4% when the consensus forecast called for only a 0.8% decrease. The market already knew that durable goods orders were weak in May; it was the 1% decline in nondurables orders that was the surprise.

The Chicago purchasing managers index rose to 53.9% in June from May's 53.1% reading. The Milwaukee purchasing index was also upbeat, posting a four-point increase. But Ian Borsook, an economist at Merrill Lynch & Co., pointed out that earlier reports on June activity in the Philadelphia and Atlanta areas both showed weakness.

Even yesterday's surge in commodity prices drew only a limited response from traders. The Commodity Research Bureau index rose 1.98 points to 207.12, but almost all of that gain was in soybeans, which have risen in price on fears the heavy rainfall in the Midwest will limit crops.

Robert Hafer, the bureau's research director, said soybeans should open much lower today because the Agriculture Department reported late yesterday that many more soybeans had been planted than traders thought.

Today's economic news should be a little more interesting than yesterday's. Jobless claims jumped by 8,000 last week, but today's report is expected to show new filings backtracked 5,000, to 348,000, in the week ended June 26.

The consensus forecast calls for a small decline in the National Purchasing Managers' Index for June, to 50.2%, down from the 51.1% reading in May. The least important of the numbers, the construction spending report, is expected to show a 0.9% increase in May, following the 0.4% April decline.

The September bond futures contract closed 2/32 lower at 113 30/32, after trading as low as 113 15/32.

In the cash market, the 7 1/8% 30-year bond was 1/32 lower, at 105 24/32-105 26/32, to yield 6.67%.

The 6 1/4% 10-year note fell 3/32, to 103 13/32-103 15/32, to yield 5.77%.

The three-year 4 1/4% note was unchanged, at 99 24/32-99 26/32, to yield 4.31%.

Rates on Treasury bills were little changed, with the three-month bill down two basis points at 3.02%, the six-month bill steady at 3.13%, and the year bill unchanged at 3.32%.Treasury Market Yields Prev. Prev. Wednesday Week Month3-Month Bill 3.06 3.17 3.106-Month Bill 3.20 3.30 3.271-Year Bill 3.43 3.51 3.532-Year Note 3.99 4.17 4.143-Year Note 4.31 4.47 4.485-Year Note 5.03 5.17 5.247-Year Note 5.42 5.53 5.6410-Year Note 5.77 5.88 6.0230-Year Bond 6.67 6.75 6.87Source: Cantor, Fitzgerald/Telerate

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