Treasury prices inched higher for the sixth session in a row yesterday as signs of weakness in a couple of economic indicators and additional declines in stock prices fed the market's bullishness.
Late in the day, the 30-year bond was 1/4 point higher to yield 7.79%. That is the lowest closing yield in four weeks.
Prices began to improve in overseas trading when the Japanese stock market dropped another 2.4%, following the previous day's 2.9% plunge.
Treasury prices did even better in early New York trading after the day's economic indicators were released. The favorable news for the market included the fact that new claims for unemployment insurance had stayed above 400,000 while the number of people receiving state benefits jumped 92,000, and that April exports were off 1.9%.
Economists said the claims report and the decline in exports both suggested the economy's comeback would be a moderate one.
Traders and analysts were cautiously optimistic about the Treasury market's near-term prospects.
Mark Mahoney, a senior vice president at Berkeley Investment Technologies, a government bond consulting firm, said the long bond's break out of its recent price range yesterday was "constructive" and suggests the 30-year has "a good shot at going to 7.75%," the high reached in mid-May.
Mr. Mahoney said the positive technical signs for the bond market include utility stock prices, which seem to be bottoming out, and the strength displayed recently by the municipal market and the front end of the Treasury market.
Jim Kenney, head of Treasury trading at Prudential Securities, agreed the Treasury market had put in an "impressive performance" recently, but noted that the gains had come in thin activity.
He said the fact that short-term securities continued to outperform the long end reflected some flight-to-quality buying, rather than increasing expectations for a Fed easing.
Given the declines in stock prices in markets around the world and the uncertainty in Europe since Danish voters rejected the Maastricht accord, "I think there's been some money flowing out of other markets into the U.S. bond market, especially at the front end," Mr. Kenney said.
A note trader in New York said the move into Treasuries had been limited in size, but added that "people are definitely nervous about stocks."
The trader said the gains in short-term prices also reflected participants' efforts to get out of curve-flattening trades by covering short positions at the front end. As the short end has outperformed in recent days, causing the yield curve to steepen, participants who bet the curve would flatten "are getting their faces ripped off," he said. Treasury Market Yields Prev. Prev. Thursday Week Month3-Month Bill 3.68 3.71 3.756-Month Bill 3.81 3.87 3.901-Year Bill 4.06 4.12 4.212-Year Note 4.88 5.05 5.303-Year Note 5.42 5.59 5.844-Year Note 6.32 6.51 6.705-Year Note 6.34 6.52 6.717-Year Note 6.76 6.93 7.0610-Year Note 7.17 7.31 7.3715-Year Bond 7.45 7.59 7.6630-Year Bond 7.79 7.87 7.86 Source: Cantor, Fitzgerald/Telerate Peter Mayers, assistant treasurerat Bank Julius Baer in New York,said that while technical signals indicatethe market should continueto rally, the lack of retail participationsuggests prices will continue totrade in narrow ranges. "I see a scenario where the previousday's highs serve as supportthe next day," Mr. Mayers said."Retail is still on the sidelines becauseit's a very confusing
market." Yesterday's Indicators The Commerce Department saidyesterday the April merchandisetrade deficit jumped to $6.97 billionfrom the revised $5.6 billion Marchdeficit, when the market had expecteda gap of only $5.8 billion. The bigger-than-expected deficitreflected a 1.6% increase in importsand a 1.9% decrease in exports.The bond market focused on theweakness in exports and the damageit could do to the economic recovery. "Exports are one of the thingsthat really pulled us along lastyear," said Cynthia Latta, a financialeconomist at DRI/McGraw-Hill."Without those to help us, we'restill facing a struggling economy." Stephen Roach, a senior economistat Morgan Stanley, said thiswas the second consecutive declinein exports, following a 1.5% decreasein March. "We did have a big spike [in exports]in February, but we're stillflattening out on export curve, andthat is an important piece of ourcase for ongoing momentum in theeconomy," Mr. Roach said. Another favorable factor was theLabor Department's report thatnew claims for unemployment insurancedeclined 2,000 to 407,000in the week ended June 6, while theprevious week's total, which wasoriginally reported as 407,000, wasrevised up to 409,000. New claims have hovered between400,000 and 410,000 for thelast five weeks, suggesting thatgains in employment have tapered
off. Anthony Chan, senior economistat Barclays de Zoete Wedd GovernmentSecurities, added that the92,000 increase in the number ofpeople receiving state benefits inthe week ended May 31 was anothersign the labor market remains
weak. The September bond futures contractclosed 7/32 higher at 100 12/32. In the cash market, the 30-year8% bond was 9/32 higher, at 102 7/32-102 11/32,to yield 7.79%. The 71/2% 10-year note 7/32,to 102 9/32, to yield 7.17%. The three-year 5 7/8% note was up3/32, at 101 4/32-101 6/32, to yield
5.42%. In when-issued trading, the two-yearnote to be auctioned Tuesdaywas bid at 4.99%, and the five-yearnote to be sold Wednesday wasquoted at 6.39%. Rates on Treasury bills were unchanged,with the three-month billat 3.62%, the six-month bill at3.71%, and the year bill at 3.91%. In other news, a spokesman forthe Federal Reserve Bank of NewYork reported at the weekly pressbriefing that the nation's M1 moneysupply declined $2.6 billion to$955.8 billion in the week endedJune 8; the broader M2 aggregatewas unchanged at $3.5 trillion; andM3 rose $9 billion, to $4.2 trillion,in the same period. Also, for the week endingWednesday, the federal funds rateaveraged 3.73%, up from 3.69% theprevious week, according to theNew York Fed. Fed Adds Primary Dealer Eastbridge Capital Inc. has beennamed a primary dealer in governmentsecurities, the Federal ReserveBank of New York said yesterday. Eastbridge, a subsidiary of NipponCredit Bank of Japan, wasfounded in 1989. "We're pleased," said DavidWeinberg, a managing director atEastbridge. "We believe it's a profitablebusiness and a good businessopportunity for us.' Eastbridge's addition brings thenumber of primary dealers to 39.The dealers are authorized to tradedirectly with the Fed in its openmarked operations.