Puzzled market awaits Greenspan testimony to dispel confusion.

Governments drifted higher yesterday as the market bided time ahead of Federal Reserve chairman Alan Greenspan's Humphrey-Hawkins testimony this week.

A dearth of fresh news left investors with little else to do than wait to hear what Greenspan has to say Wednesday. Still, prices edged higher through the afternoon as dealers covered short positions.

The 30-year bond closed up more than 3/s of a point, to yield 7.5O%.

Greenspan's testimony this week is particularly crucial because much of the confusion in the bond market reflects puzzlement over when the Fed will tighten monetary policy again.

Treasuries generally improved yesterday as more bond investors came around to the view that the Federal Reserve may not raise interest rates before its next meeting of policymakers next month.

Favorable economic figures and a stronger U.S. dollar in recent sessions have supported the view that the central bank can hold off on tightening monetary policy between now and the Aug. 16 Federal Open Market Committee meeting.

While opinions diverge widely as to whether the Fed will act soon to rein in credit again or will sit back and continue to monitor the economy's performance, recent developments have brought some long-absent buyers back to the market. Previously jittery retail buyers, for example, are trickling back as improved fundamentals, brighter investor sentiment, and a better technical outlook combine to lift Treasuries across the yield spectrum.

But investors are not getting ahead of themselves. Despite the bond market's stronger tone of late, some retail investors are playing their assets close to the vest. Amid signs that the economy continues to expand apace and uncertainty about the direction of U.S. interest rates, few long-term investors are willing to come off the sidelines and risk sizable losses.

Against that backdrop, the bond market hopes to get a read on the future of monetary policy this week as Greenspan testifies before Congress.

"This Wednesday's Humphrey-Hawkins hearings will be of no small consequence," said Matthew Alexy, senior market strategist at CS First Boston Corp. "The spin with which chairman Greenspan serves his view of the economy could offer insight into how long this period of assessment might last."

David C. Munro, chief U.S. economist at High Frequency Economics, said the market is particularly interested in Greenspan's discussion of overall economic fundamentals. The Fed, he said, will attempt to spin the health of the economy with a dovish or hawkish tenor.

Asserting that mainstream economic math still implies that the expansion has reached the threshold where inflation starts to heat up, Munro thinks the central bank is poised to tighten credit further. "I see no dividend for the Fed from a wait-and-see stance," he said.

What energy isn't expended interpreting Greenspan's comments will be spent combing through the few economic reports scheduled for release week, Alexy said. Those reports include the June merchandise trade report and June housing starts.

In futures, the September bond contract ended up 1/2 a point at 103.02.

In the cash markets, the 6% two-year note was quoted late Monday up 3/32 at 100.01-100.02 to yield 5.96%. The 6 3/4% five-year note ended up 8/32 at 99.27-99.29 to yield 6.77%. The 71/4% 10-year note was up 11/32 at 100. 11 - 100. 15 to yield 7.18%, and the 6 1/4% 30-year bond was up 13/32 at 85.05-85.09 to yield 7.50%.

Czech Debt Upgraded

The three-month Treasury bill was down two basis points at 4.33%. The six-month bill was down five basis points at 4.80%, and the year bill was down four basis points at 5.29%.

Standard & Poor's Corp. said it raised its implied rating on the Czech National Bank's senior foreign currency debt to BBB-plus from BBB.

The rating outlook remains positive.

Standard & Poor's said the rating upgrade and positive outlook reflect the Czech Republic's remarkably smooth transition from a planned to a market economy. Political stability should enable the country to weather pressures from an industrial restructuring and the financial system, while further improvements in the economy's structure should strengthen its growth outlook, the rating agency said.

The rating is also supported by the country's position as a net international creditor and prudent economic manager. Further industrial restructuring will be key for future export growth and the evolution of the republic's external financial position in the medium term, Standard & Poor's said.

The economic outlook for 1994 is steadily improving. Rising output of new and privatized companies has contributed significantly to the expansion of the gross domestic product, which is likely to grow 2% to 3% this year and 4% to 5% in 1995. Despite large layoffs in state companies, the unemployment rate is very low, at 3.1% in mid-1994, as many new jobs are created by the private sector, Standard & Poor's said.

The restructuring of newly privatized companies is unlikely to increase this rate above 5% over the next year or so. Inflation is expected to fall below 10% by the end of 1994 and 8% in 1995, with core inflation at about 6% and 5%, respectively, Standard & Poor's said.

Rising tourism and other services revenues should maintain the current account in surplus during 1994-95, despite rising imports. These surpluses, accompanied by large inflows of equity investments, should continue to boost foreign exchange reserves to about $6.5 billion by the end of 1994, up from $800 million in early 1993, the rating agency said.

Continued political, economic, and social stability should bolster the Czech republic's financial position and its growth prospects longer term, Standard & Poor's said.

In other news, the Federal Home Loan Bank said it intends to issue a $1 billion global bond issue with lead managers Lehman Brothers and Morgan Stanley & Co.

The maturity is expected to be two years, the agency said. The FHLB said the issue would be the inaugural portion of a $5 billion global debt program announced July 1.

The global bond issue is expected to be launched and priced later this week, the agency said in a statement.

In the secondary market for corporate securities, spreads of investment-grade issues narrowed by 1/8 of a point, while high-yield issues generally ended narrowly mixed.Treasury Market Yields Prev. Prev. Monday Week Month3-Month Bill 4.33 4.53 4.196-Month Bill 4.80 5.53 4.641-Year Bill 5.29 5.57 5.172-Year Note 5.96 6.25 5.893-Year Note 6.28 6.58 6.235-Year Note 6.77 7.07 6.727-Year Note 6.96 7.27 6.7610-Year Note 7.16 7.45 7.1530-Year Bond 7.50 7.71 7.45

Source: Cantor, Fitzgerald/Telerate

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