Reports that consumer confidence droppes again in November helped Treasury prices move higher yesterday.
Traders said the well-bid, five-year auction and the Federal Reserve's purchase of securities for its own account added to the firm tone in the market.
Late yesterday, the 30-year bond was up 1/2 point and yielded 7.94%.
The Conference Board said yesterday its index of consumer sentiment fell sharply for the second month in a row in November.
Its 50.6 November reading was down almost 10 points from a revised 60.1 level in October, which reflected a drop of almost 13 points from September.
The November measure is more than three points lower than the worst reading during the 1982 recession, the board said.
The Conference Board results were in line with the weakness seen in the University of Michigan's preliminary November statistics.
Economists, who have been counting on consumer spending to bring the economy out of the doldrums, said yesterday's numbers were worrisome, especially going into the holiday shopping season.
"The consumer remains in a dismal frame of mind," said Kevin Flanagan, a money market economist at Dean Witter Reynolds Inc. "It
Treasury Market Yields
Tuesday Week Month
3-Month Bill 4.54 4.64 5.01
6-Month Bill 4.56 4.73 5.10
1-Year Bill 4.72 4.82 5.16
2-Year Note 5.45 5.48 5.76
3-Year Note 5.79 5.82 6.05
4-Year Note 5.88 5.92 6.20
5-Year Note 6.54 6.55 6.78
7-Year Note 7.00 6.96 7.15
10-Year Note 7.40 7.36 7.48
15-Year Bond 7.71 7.72 7.73
30-Year Bond 7.94 7.91 7.89
Source: Cantor, Fitzgerald/Telerate
looks as if the recovery has stalled, and with the consumer not willing to pull us out of it, it should get worse before it gets better."
Lynn Reaser, a senior economist at First Interstate Bancorp, said the drop in confidence was "sizeable" and shows "the jobs situation is a major concern at this point."
She pointed out, though, that there is some disparity between what consumers are saying and what they're doing.
"Retail sales have not collapsed, home sales have shown some improvement," Ms. Reaser said. "How consumers are performing would seem to be more positive" than the measures of consumer sentiment.
Analysts said the Conference Board's description of dispirited consumers was one more argument for a Fed easing sometime this year.
That line of though buoyed the short end of the Treasury market all day. The long end had a harder time holding on its early gains.
Profit-taking quickly wiped out part of the early improvement. And President Bush's enthusiastic endorsement of the GOP's fiscal stimulus package was another problem for long-term prices.
Bonds began to recover early in the afternoon when the Fed announced it would buy coupons for its own account.
The Fed usually does a bill or coupon "pass" at this time of year to add to reserves as the monetary system heads into the holiday season, and the Fed's purchases yesterday apparently sopped up some supply at the long end.
The market also was supported by the respectable results from the Treasury's auction of $9.09 billion of five-year notes.
The five-years came at an average rate of 6.54% and will bear a 6 1/2% coupon.
Traders said the auction came right where the Street expected.
Also, the statistics showed there was good demand for the notes. Bids totaled almost three times the size of the issue, and noncompetitive bids jumped to $827 million from $432 million at last month's sale.
Late yesterday, traders said a lot of the five-years were still in dealers' hands. But since expectations for another Fed ease are widespread, having the notes in inventory isn't seen as a problem.
The December bond future contract closed 15/32 higher, at 99 18/32.
In the cash market, the 30-year 8% bond was 7/16 higher, at 100 16/32-100 20/32, to yield 7.94%.
The 7 1/2% 10-year note rose 5/16, to 100 17/32-100 21/32, to yield 7.40%.
The three-year 6% note was up 5/32, at 100 16/32-100 18/32, to yield 5.79%.
In when-issued trading, the 5 1/2% two-year note was up 1/8, at 100 2/32-100 3/32, to yield 5.45%, down from the 5.51% average at Monday's auction.
Rates on Treasury bills were lower, with the three-month bill off four basis points at 4.40%, the six-month bill down four basis points at 4.46%, and the year bill five basis points lower at 4.51%.
The Public Securities Association has recommended the government market close early, at 1 p.m., eastern standard time, both today and Friday.
But before traders leave this afternoon to celebrate Thanksgiving, they will get a whole host of economic news, including October durable goods and personal income, the Chicago purchasing managers' report for November, and the latest jobless claims number.
Analysts surveyed by The Bond Buyer expect a 1.3% increase in October durable goods orders. That would be the first gain in durables orders in three months, following declines of 3.2% in September and 4.1% in August.
And according to the survey, October personal income will come in unchanged after rising 0.5% in September, and October spending will rise 0.1% after increasing 0.9% in September.
But traders said the hot number will be jobless claims.
In the previous two weeks, claims jumped 72,000, to 493,000, the highest level since late April, suggesting further deterioration in the labor market.
But economists expect today's report for the week of Nov. 16 to show new claims for unemployment insurance dropped by 47,000, to 446,000, in part because state offices were closed one day that week for Veterans Day.
As many as three million unemployed workers whose benefits have expired will be eligible for the extended benefits program that was enacted this month, but those people will not show up in the weekly claims numbers.
Lori Chappel of the Labor Department's public affairs staff said this week that since the Emergency Employment Compensation Program is separate from the regular state benefits program, the recipients will be tallied separately.