Short- and intermediate-term Treasury notes posted moderate gains yesterday as investors continued to buy fixed-income securities in the wake of the surprisingly weak June jobs data.

The bullishness engendered by the jobs data enabled the market to overlook a substantial spike in late-June car sales.

Late yesterday afternoon, the 30-year bond was up only 1/8 point to yield 7.61%, but two-year and 10-year notes were 1/4 point higher on the day.

As long-term prices lagged other securities, the yield curve steepened even more. Late yesterday, the 30-year bond was yielding 318 basis points more than the two-year note, up from 307 basis points at Thursday's close and up from 289 at the start of last week.

Treasury prices rallied sharply on Thursday after the Labor Department reported a 117,000 drop in June nonfarm payrolls, and traders said yesterday's gains were a continuation of that rally. The jobs report suggested the economy was much weaker last month than most had thought.

"The overwhelming influence on this market has been the employment data," said James Kenney, head of Treasury trading at Prudential Securities. "There's no getting around the fact that those jobs numbers were terrible."

"Everyone's pretty constructive on the market," said Jerry Zukowski, a money market economist at PaineWebber Inc. "It's hard not to be, after a number like the one Thursday."

Most of the day's gains occurred early in the New York session. After an initial surge, the long end gave back most of its gains, and shorter paper held on to the early gains in quiet activity.

Traders said the two-year note had a good bid early in the day. Late in the afternoon, the five-year saw some buying, and a coupon trader said it was related to a corporate bond deal.

The bond market was not fazed by auto makers' sales figures for the last 10 days of June.

Analysts estimate domestic car sales came in at a 7.4 million annual rate. That is the strongest 10-day sales figure since December 1990 and up from the 6.4 million rate in mid-June.

The bond market may have been reassured because some of the gain apparently reflected fleet sales, rather than consumer demand.

Ford Motor Co. said in a news release that its late-June sales were "somewhat inflated" because car rental companies had asked it to step up deliveries "to accommodate a late-summer spike in reservations." General Motors sales were also believed to have benefited from fleet sales.

"All the discount air tickets caused a lot more demand for rental cars," said Diane Swonk, a senior regional economist at First Chicago. "The pickup auto sales themselves overstates the extent to which the consumer is out there buying."

On the other hand, Ms. Swonk said, the late-June sales figures suggest the manufacturers will be able to adhere to their optimistic third-quarter production schedules.

Yesterday morning, the Federal Reserve unexpectedly drained reserves from the monetary system with three-day matched sales-repurchase agreements.

Analysts said the three-day duration and the Fed's intervention when funds were trading below the new target showed the Fed's action had no policy significance.

Traders said the weekly auction of $23.4 billion of three- and six-month bills went well. The sharp decline in this week's rates reflected the Fed's easing moves last week, they said.

The three-month bills were sold at an average rate of 3.23%, down from 3.59% last week and the lowest rate since 3.15% on Feb. 18, 1972. 3.15 The six-month bills came at an average rate of 3.32%, down from 3.66% last week and the lowest seen since 3.27% on July 8, 1963.

The September bond futures contract close 1/32 lower at 102 20/32.

In the cash market, the 30-year 8% bond was 3/32 higher, at 104 10/32- 104 14/32, to yield 7.61%.

The 7 1/2% 10-year note rose 1/4, to 104 7/32- 104 11/32, to yield 6.88%.

The three-year 5 7/8% note was up 9/32, at 102 11/32- 102 13/32, to yield 4.95%.

In when-issued trading, the seven-year note to be auctioned tomorrow was bid at 6.47%, down from 6.50% on Thursday.

Rates on Treasury bills were lower, with the three-month bill down one basis point at 3.23%, the six-month bill off four basis points at 3.30%, and the year bill off four basis points at 3.53%.

Treasury Market Yields

Prev. Prev.

Monday Week Month

3-Month Bill 3.28 3.62 3.74

6-Month Bill 3.39 3.76 3.91

1-Year Bill 3.66 4.03 4.18

2-Year Note 4.43 4.80 5.05

3-Year Note 4.95 5.29 5.62

4-Year Note 5.96 6.27 6.54

5-Year Note 5.95 6.26 6.54

7-Year Note 6.43 6.68 6.92

10-Year Note 6.88 7.09 7.30

15-Year Bond 7.25 7.40 7.57

30-Year Bond 7.61 7.76 7.83

Source: Cantor, Fitzgeral/Telerate

Rates Decline in Treasury Bill Auctions

WASHINGTON -- The Treasury sold $23.39 billion of 91-day and 182-day bills at lower rates yesterday, as the three-months incurred an average rate of 3.23%, down from 3.59% in the previous auction on June 29 and the lowest since 3.15% in Feb. 18, 1972. The six-months incurred a 3.32% rate, down from 3.66% and the lowest since 3.27% on July 8, 1963.

Coupon equivalents were 3.30% for the three-months and 3.42% for the six-months.

Tenders for the 91s totaled $44.74 billion, and the Treasury accepted $11.69 billion, including $1.58 billion of noncompetitive bids accepted at the average. The New York Federal Reserve District applied for $39.64 billion of these bills and received $10.03 billion.

Tenders for the 182s totaled $46.46 billion, and the Treasury accepted $11.7 billion, including $1.18 billion of noncompetitive bids accepted at the average. The New York Fed applied for $42.5 billion of these bills and received $10.56 billion.

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