Despite sharp gains Friday off the Federal Reserve's dramatic interest rate cuts, market participants decided yesterday there was still room for another rally.
The lomh nomd picked up 23/32, to yield 7.52 %, after rising nearly a point Friday. The bill selector, which is scraping along at lows not seen since the early 1970s, is having difficulty sinking any lower, and rates on bills rose slightly yesterday.
"Bills have outperformed all along, so I think they had all the good news priced in them already," said Jan Hurley, a senior market analyst at Chase Securities. Yesterday's bill auctions resulted in an average 3.75% yield on the three-month bill and a 3.85% on the six-month bill.
"At three and three-quarters, who wants them?" Ms. Hurley said.
The long end, however, is still picking up steam, with several traders predicting the 30-year bond could trade below 7.25%.
The Fed cut interest rates sharply Friday, with a 1% drop in the discount rate and a 1/2% decrease in the funds rate. But many participants believe another cut could be in the offing, given continued weakness in the economy.
Today's release of the durable goods figure for November, for example, is expected to show a 1.5% decrease, according to a survey of economists by The Bond Buyer. Ms. Hurley said the indicator should have little effect on pricess unless it comes in flat or higher. Either way, the release will be the final price stimulus that marked participants can expect for the notoriously slow holiday week, she predicted.
Yesterday's only indicators had little price impact, with November personal income registering a 1.0% decline and consumption showing a 0.7% rise. Income was weaker than expected and consumption was stronger.
Kevin Flanagan, a money market economist at Dean Witter Reynolds, said the numbers by themselves do not show much, but when considered in conjunction with other recent data they strengthen the perception of a general weakness in the economy.
Mr. Flanagan said, "There is a better than 50-50 chance" that Washington will respond with an aggressive economic program to fix the economy, especially considering the approaching election year. But he warned that a tax cut and spending increased would be "disastrous" for the market. The long end views such proposals as short-term solutions that would ultimately prove inflationary when a recovery finally emerges.
Treasury Market Yields
Monday Week Month
3-Month Bill 3.81 4.24 4.54
6-Month Bill 3.95 4.29 4.66
1-Year Bill 4.11 4.41 4.76
2-Year Note 4.81 5.04 5.49
3-Year Note 5.11 5.37 5.84
4-Year Note 5.23 5.48 5.94
5-Year Note 6.00 6.25 6.58
7-Year Note 6.45 6.71 7.03
10-Year Note 6.86 7.17 7.45
15-Year Bond 7.57 7.51 7.72
30-Year Bond 7.52 7.74 7.98
Source: Cantor, Fitzgerald/Telerate
The March bond future contract closed at 103 10/32, up 9/16 on the day.
In the cash market, the 30-year 8% bond was 23/32 higher, at 105 17/32-105 21/32, to yield 7.52%.
The 7 1/2% 10-year note rose 21/32. to 104 13/32-104 17/32, to yield 6.86%.
The three-year 6% note was up 5/32, at 102 9/32-102 11/32, to yield 5.11%.
In when-issued trading, the 5% two-year note was up 1/32 at 100 10/32-100 11/32 to yield 4.81%.
The when-issued 6 1/8% five-year note rose 1/8 at 100 15/32-100 17/32 to yield 6%.
Rates on Treasury bills were higher, with the three-month bill up two basis points at 3.74%, the six-month bill up one basis point at 3.84%, and the year bill up three basis points of 3.95%.