Treasury prices ended with modest gains yesterday after seesawing within narrow price range during the session.

Late in the afternoon, the 30-year bond was up 1/8 point to yield 7.81%.

The market improved yesterday morning, sold off at midday on the Federal Reserve's so-called beige book, then headed back to the highs during the afternoon when the slide in U.S. stock prices spurred some buying.

Treasury securities continue to trade with a firm one, but traders said prices may be stuck near current levels for another week or more, until the market gets some information pointing it in one direction or another.

"I think it will be an underwhelming market for the next few days," a government note trader said.

The trader said Next Wednesday's report on May durable goods orders was the next number that looked important enough to push the market out of its current price range.

"Trading has been on the lack-luster side, and the market's just waiting for some new direction," said Kevin Flanagan, a money market economist at Dean Witter Reynolds Inc.

Mr. Flanagan said it was possible May durable goods would be the catalyst the market needs, "or maybe we have to wait until July 1, when we start getting June data."

The Treasury market's underlying bullishness was on display yesterday morning, when long-term prices moved higher for no particular reason.

The market gave back its early gains when the beige book depicted a modest recovery, even though economists had predicted an upbeat report.

The beige book, which compiles updates from the 12 district Fed banks on economic conditions before June 9, says the recovery is continuing, with all districts reporting "improving manufacturing conditions."

Kathleen Stephansen, senior economist at Donaldson, Lufkin & Jenrette Securities Corp., said yesterday's beige book contained two new elements: its mention of improved loan demand, and the fact that it suggested the recovery was occurring uniformly across the nation.

"It looks as though there was none of this regional disparity that was an underlying theme in the prior tan books." Ms. Stephansen said.

Traders said even though the report came in as expected, good news about the economy was still bad news for the bond market.

During the afternoon, prices switched directions again and rallied in response to a sell-off in the stock market.

The Dow Jones industrial average broke through support at 3300 and closed 41.73 points lower at 3287.76.

Yesterday's decline in the Dow looked modest, though, compared to the deterioration in some other stock markets.

The Nikkei index of Japanese stock prices lost 507.73 points, or 2.99% of its value, yesterday to close at 16,445.80, its lowest closing level since October 1986. The Mexican stock market was off almost 6% on the day.

"Investors are leery of what's going on in global equity arenas," Mr. Flanagan said. "Perhaps with some of this equity weakness, you're seeing some money put into the Treasury market."

A coupon trader said he though the buying was mostly short-covering.

Even though the Treasury market gave back its morning gains at midday, it did not go low enough to satisfy participants with short positions, he said. So when U.S. stocks went lower during the afternoon, "that gave them an excuse to cover their shorts," the trader added.

Treasury Market Yields

Prev. Prev.

Wednesday Week Month

3-Month Bill 3.68 3.75 3.65

6-Month Bill 3.81 3.92 3.79

1-Year Note 4.06 4.18 4.06

2-Year Note 4.92 5.07 5.06

3-Year Note 5.46 5.62 5.66

4-Year Note 6.38 6.56 6.53

5-Year Note 6.39 6.57 6.54

7-Year Note 6.80 6.96 6.91

10-Year Note 7.20 7.34 7.25

15-Year Bond 7.49 7.62 7.54

30-Year Bond 7.81 7.89 7.80

Source: Cantor, Fitzgerald/Telerate

Participants were looking at U.S. stock prices, "but they definitely have the Nikkei in the back of their minds," he said.

Some traders said the sell-off in stocks adds to the arguments for another Fed easing. They cited the last Fed easing on April 9, which occurred as Japanese stocks were posting big losses. Fed Chairman Alan Greenspan has denied that the April 9 easing came in response to the weakness in Japanese stocks.

The bond market did not react to tht Treasury's announcement yesterday that it was increasing the sizes of both of next week's note issues by $250 million. The government will sell $15 billion of two-year notes Tuesday, up from $14.75 billion in May, and $10.5 billion of five-year notes Wednesday, up from $10.25 billion.

Late yesterday, the when-issued two-year note stood at 5.03%, and the when-issued five-year was bid at 6.44%.

The September bond futures contract closed 1/16 higher at 100 5/32.

In the cash market, the 30-year 8% bond was 5/32 higher, at 101 30/32-10 2/32, to yield 7.81%.

The 7 1/2% 10-year note rose 5/32, to 101 30/32-102 2/32, to yield 7.20%.

The three-year 5 7/8% note was up 3/32, at 101 1/32-101 3/32, to yield 5.46%.

Rates on Treasury bills were lower, with the 3-month bill down three basis points at 3.62%, the 6-month bill off three basis points at 3.71%, and the year bill one basis point lower at 3.91%.

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