Most Treasury prices ended with small gains yesterday after a late-day bout of short-covering brought the market back from its lows.
Late in the afternoon, the 30-year bond was up 1/8 point to yield 7.59%, and short- and intermediate-term notes were up 1/8 to 1/4 point.
Traders said participants bought securities to cover short positions late in the day because they were worried about how the market would react to the money supply numbers yesterday and this morning's June producer price report.
"People got nervous about being short for money supply and PPI," the head of a government trading desk said. "Guys want to be flat."
Steve Ricchiuto, chief economist at Barclays de Zoete Wedd Government Securities, noted that the gains occurred after futures trading ended, when flows in the cash market were thin. He said he thought the buying was mostly professional.
Traders blamed the small declines earlier in the session on the quantity of Treasury and corporate supply the dealer community had to absorb this week.
The rally that started last Thursday when the market saw the disconcertingly weak June jobs report finally stalled out Wednesday when the Treasury threw another $9.75 billion of seven-year notes into the market.
Corporate issuance has also been heavy, with $4 billion of bonds priced Tuesday, another $2 billion Wednesday, and a $1.5 billion World Bank global issue priced yesterday.
A government coupon trader said the World BAnk deal went well, but resulted in selling of other securities as the buyers of the World Bank deal made room for their new paper.
There were reports that some of the other new corporate deals have been less popular, resulting in corporate hedging of those deals in the Treasury market.
The new 6 3/8% seven-year notes underperformed the rest of the market throughout the session yesterday but managed to get back to Wednesday's closing levels late in the afternoon.
The bond market held its gains when the M2 and M3 monetary aggregates showed sizeable declines.
A spokesman for the Federal Reserve Bank of New York reported at the bank's weekly press briefing that M2, the most closely followed of the money supply numbers, fell $7.3 billion in the week ended June 29, to $3.4 billion, following a $10.6 billion decline in the previous week.
M3 plunged $13.8 billion, to $4.1 trillion, and M1 was up $500 million, to $949.6 billion.
Mr. Ricchiuto said M2 has grown only .85% since the fourth quarter, well below the 2.5% minimum growth rate set by the Fed.
Analysts said, though, that the weakness in money supply growth was old news to the Fed.
Anthony Karydakis, a senior financial economist at First Chicago, said Fed policymakers already had this week's money supply numbers before they cut rates last Thursday.
The Treasury market was also buoyed yesterday by the prospect of a friendly producer price report this morning.
The consensus forecast calls for a 0.2% gain in producer prices and no change in the core rate, excluding food and energy costs. In May, producer prices were up 0.4% and the core rate jumped 0.6%, in part because of an unexpected increase in tobacco prices.
Analysts said the June core rate will be held down because the seasonal adjustments expect the rise in tobacco prices that already occurred in May.
Treasury Market Yields
Thursday Week Month
3-Month Bill 3.26 3.29 3.71
6-Month Bill 3.36 3.43 3.87
1-Year Bill 3.58 3.69 4.12
2-Year Note 4.34 4.55 5.05
3-Year Note 4.83 5.06 5.59
5-Year Note 5.89 6.02 6.52
7-Year Note 6.41 6.48 6.93
10-Year Note 6.87 6.91 7.31
15-Year Bond 7.22 7.24 7.59
30-Year Bond 7.59 7.62 7.87
Source: Cantor, Fitzgerald/Telerate
The weekly jobless claims report yesterday morning was in line with market expectations and had no impact on prices.
The labor Department said new filings for unemployment benefits fell 4,000, to 416,000 in the week ended June 27, while the total number of people receiving benefits during the previous week rose 23,000, to 3.303 million.
The Treasury market also showed little response to the news yesterday that Brazil has reached an agreement to restructure $44 billion of bank debt.
Brazil's plan is similar to the Argentine debt restructuring deal, although Brazil is offering its debtors more options. Both Argentina and Brazil will use stripped Treasury securities as collateral for the bonds they swap for their outstanding debt, but Treasury traders now seem to doubt that much of that debt will be bought from the secondary market.
The September bond futures contract closed 3/32 higher at 102 22/32.
In the cash market, the 30-year 8% bond was 1/8 higher, at 104 20/32-104 24/32, to yield 7.59%.
The 7 1/2% 10-year note up 1/16, to 104 9/32-104 13/32, to yield 6.87%.
The three-year 5 7/8% note was up 1/8, at 102 21/32-102 23/32, to yield 4.83%.
In when-issued trading, the 6 3/8% seven-year note was unchanged, at 99 21/32-99 25/32, to yield 6.41%.
Rates on Treasury bills were lower, with the three-month bill off one basis point at 3.21%, the six-month bill off one basis point at 3.28%, and the year bill four basis points lower at 3.46%.
In other news, the New York Fed said the federal funds rate averaged 3.24% for the week ended Wednesday, down from 3.87% the previous week, according to the New York Fed.