Most Treasury note and bond prices ended a little higher yesterday in spite of the surprisingly big spike reported in April new home sales.
Late in the afternoon, the 30-year bond was up 2/32 point to yield 6.87%, while note prices were unchanged to 1/2 point higher.
Some traders said the bond market had put in it good performance, since it managed to bounce back from the unfriendly home sales report and was still holding onto all the gains it made in Tuesday's rally. On Tuesday, the long bond rose 1 1/4 points in response to a drop in commodity prices and the perception that the chances for Senate passage of the deficit reduction package were improving.
But the head of a government trading desk said it would be a mistake take to read too much into yesterday's price action.
"This in people setting themselves up to get as neutral as they can to go into the employment number" tomorrow, he said. "It trades like there's still some short positions out there."
The May employment report will be released tomorrow morning. The consensus forecast calls for a 133,000 increase in nonfarm payrolls, which compares to the 119,000 gain in April.
Alan Levenson, a money market economist at UBS Securities, described yesterday as "a featureless day with some ups and downs" and said today's activity is likely to be equally unimpressive ahead of the jobs statistics.
Treasury prices headed lower in mid-morning when the Commerce Department said new home sales had surged 22.7% in April, to a 751,000 annual rate.
The consensus forecast called for a 1.7% increase. The gain put home sales at their highest level since December 1986.
At the same time, March's increase was revised down to 1.5% from the 4.8% gain reported last month.
Analysts said that part of the gain just reflected the fact that the weather improved in April. Levenson said the market's subsequent bounce suggested traders had explained away the home sales figure on that account.
Ian Borsook, an economist at Merrill Lynch & Co., said the April gain might be a little overstated. But he said the improvement in home sales made sense given favorable fundamentals like affordable home prices and the number of mortgage applications.
"If the stronger pace continues, then housing starts will improve more rapidly and that will start filtering through to other parts of the economy." Borsook said.
After selling off on the home sales report, the Treasury market retraced those losses over the course of the day.
Traders said buying for municipal defeasance deals had bolstered prices. And the bill sector got a boost when the Federal Reserve said early in the afternoon that it was making a permanent purchase of bills for its own account, in what is known in the market as a "bill pass." Traders estimated the Fed bought about $3 billion of bills.
There were also reports of retail buying. A note trader said he had seen some purchases by market timers and guessed other technically minded accounts were also buying securities.
The market paid little attention to the 0.1% rise in April leading indicators, which was not far from the 0.3% increase the market expected.
There is not much economic news to distract the market today. The consensus forecast calls for an unchanged Jobless claims number, at 340,000, and a 6.9 million sales pace for late-May autos.
The September bond futures contract closed unchanged at 110 23/32.
In the cash market, the 7 1/8% 30-year bond was 2/32 higher, at 103 3/32-103 5/32, to yield 6.87%.
The 6 1/4% 10-year note rose 2/32, to 101 17/32-101 19/32, to yield 6.02%.
The three-year 4 1/4% note was up 2/32, at 99 9/32-99 11/32, to yield 4.48%.
Rates on Treasury bills were mixed, with the three-month bill down two basis points at 3.06%, the six-month bill down two basis points at 3.20%, and the year bill one basis point higher at 3.42%. Treasury Market Yields Prev. Prev. Wednesday Week Month3-Month Bill 3.10 3.08 2.946-Month Bill 3.27 3.26 3.071-Year Bill 3.53 3.43 3.242-Year Note 4.14 4.14 3.793-Year Note 4.48 4.51 4.155-Year Note 5.24 5.27 5.017-You Note 5.64 5.71 5.4710-Year Note 6.02 6.08 5.8830-Year Bond 6.87 6.91 6.78Source: Cantor, Fitzgerald/Telerate