Treasury notes and bonds improved <

for the second session in a row yesterday as a stronger-than-expected jobless claims report failed to dent the market's good mood.

The 30-year bond ended 1/2 point <

higher to yield 7.85% yesterday and intermediate notes did proportionally better, with the 10-year also up 1/2 point.

Traders said the market was benefiting <

from the realization that Tuesday's worries about higher oil prices were overblown and from the big declines reported in yesterday's money supply numbers.

Prices dipped only briefly yesterday <

morning when a small decline in the weekly jobless claims report showed the labor market is improving slowly.

The Labor Department said new <

filings for unemployment insurance fell 4,000 to 403,000, in the week ended May 16. The consensus forecast was for a rise of 2,000, and some analysts had predicted claims totals as high as 431,000.

Analysts said, though, that the <

decline in claims was a small one and showed only a modest pick-up in the labor market.

Anthony Chan, a senior economist <

at Barclays de Zoete Wedd Government Securities, pointed out that the four-week moving average of claims, at 412,500, was almost unchanged from the 412,750 level the previous week and the 412,000 reading the week before that.

"After you take all the noise out, <

you realize we are not showing any massive improvement in the labor market," Mr. Chan said. "I think this evidence is consistent with a slow recovery."

Traders said the Treasury market <

began to rally when the lower prices reached after the claims report brought some retail buyers into the market.

"Somebody decided those levels <

were good enough to buy," a note trader said.

Five-year notes were in heavy demand <

for the second day in a row, and yesterday the strength in the five-year spilled over to seven- and 10-year notes as well.

Traders said all kinds of accounts <

were buying the five-year notes, and noted that five-years were just reversing the losses that occurred when they underperformed the rest of the market in last Thursday's sell-off.

Anticipation of a favorable batch <

of money supply statistics also helped the Treasury market yesterday, and for once the forecasts were correct. When the Federal Reserve Bank of New York announced the money supply numbers, all three of the monetary aggregates showed large declines.

At the bank's weekly press briefing, <

a spokesman for the New York Fed reported that the nation's M1 money supply fell $1.4 billion to $953.9 billion in the week ended May 18; the broader M2 aggregate dropped $7.4 billion, to $3.5 trillion; and M3 declined $7.3 billion, to $4.2 trillion, in the same period.

<

Treasury Market Yields

Prev. Prev.

Wednesday Week Month <

3-Month Bill 3.74 3.65 3.78

6-Month Bill 3.93 3.79 3.96

1-Year Bill 4.15 4.06 4.29

2-Year Note 5.20 5.06 5.40

3-Year Note 5.75 5.66 5.91

4-Year Note 6.63 6.53 6.88

5-Year Note 6.65 6.54 6.89

7-Year Note 7.00 6.91 7.23

10-Year Note 7.35 7.25 7.59

15-Year Bond 7.62 7.54 7.82

30-Year Bond 7.85 7.80 8.06

Source: Cantor, Fitzgerald/Telerate <

The market's buoyant mood resulted <

in a well-bid year bill auction. The $13.8 billion of bills were sold at an average rate of 4.07%, and the Treasury received over $40 billion of bids for the bills.

This morning's report on first-quarter <

gross domestic product may look like bad news for bonds, but traders said there has been so much discussion of the expected upward revision that such a change would probably not impact Treasury prices.

Economists surveyed by The Bond <

Buyer on average expect first-quarter growth rate to be revised up to 2.9% from the 2.0% gain reported last month.

The analysts said the big upward <

revision is mostly due to the fact that inventories did not decline nearly as much during the first quarter as the Commerce Department originally estimated.

Also today, the Chicago Purchasing <

Managers will release their May survey. April's survey came in at 54.3% on seasonally adjusted basis.

The June bond futures contract <

closed 11/32 higher at 100-9/32.

In the cash market, the 30-year <

8% bond was 15/32 higher, at 101-16/32-101-20/32, to yield 7.85%.

The 7-1/2% 10-year note rose 15/32, <

to 100-29/32-101-1/32, to yield 7.35%.

The three-year 5-7/8% note was up <

1/8, at 100-8/32-100-10/32, to yield 5.75%.

In when-issued trading, the 5-1/8% <

two-year note was 3/32 higher, at 99-26/32-99-27/32, to yield 5.20% and the five-year 6-3/4% note was up 5/32, at 100-11/32-100-13/32, to yield 6.65%.

Rates on Treasury bills were <

mixed, with the three-month bill down three basis points at 3.68%, the six-month bill steady at 3.83%, and the year bill four basis points lower at 4%.

In other news, the New York Fed <

said the federal funds rate averaged 3.80% for the week ending Wednesday, down from 3.89% the previous week.

<

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