The Treasury market rallied yesterday on a combination of bargain-hunting and short covering, but traders dismissed the gains as a technical rebound following four sessions of price declines.

Late in the day, the 30-year bond was up 1/2 point to yield 7.60% and notes were 1/4 to 7/8 point higher.

"The market had backed up enough that you would except a technical bounce," the head of a government trading desk said.

The official said dealers came into yesterday's session with flat or slightly short positions after selling heavily as the market went down in recent days.

"The combination of the Street having purged itself and retail nibbling at the edges was enough" to push prices higher, he said.

The selling began in London, after Treasury prices made new lows overnight in Tokyo.

"There were some people who decided securities had reached a relatively attractive level," said Jerry Zukowski, an economist at PaineWebber Inc. "Buyers are not coming in wholesale, but some people decided to step up to the plate."

The desk head said participants taking off curve-steepening trades or putting in flattering trades were another factor in yesterday's trading. "The market is quite noisy and quite choppy," he added.

Mary Rooney, a money market economist at S.G. Warburg, said the market's oversold condition had resulted in some short covering.

Traders said under-the-table purchases by the Federal Reserve and other central banks also helped market. The Fed reportedly bought two-year and five-year notes and off-the-run 10-years, and traders said some foreign central banks bought similar maturities.

Yesterday's gains were not enough to convince participants that the market is on the mend. Prices have fallen sharply in recent days on worries about a Clinton presidency and the heavy calendar of Treasury auctions, and the market still faces both those problems, they said.

A note trader said the bond market is still under a lot of pressure. "There are still banks unloading paper, the bond contract can't get out of its own way, and the technicals look terrible," he said.

Over the last two days, traders have been made nervous by reports that banks are beginning to lighten their Treasury holdings because of a small increase in loan demand.

The worries about bank selling seem to have started when Nations-Bank, which has a large Treasury portfolio, reported Monday that its loans rose $885 million during the third quarter.

As loan demand weakened over the last couple of years, banks put their excess funds in the short end of the Treasury market, and in the process they became a major supported of that area of the curve.

But analysts said the worries about bank selling seemed exaggerated given that economic growth remains quite sluggish.

"National statistics indicate loan demand did pick up in September, but I can't imagine loan demand has picked up so strongly that it would result in wholesale selling of Treasury portfolios," Zukowski said.

Rooney said that even though she is optimistic about the long-term outlook for Treasuries, "it's hard to get real enthusiastic about the market before the elections."

Given the uncertainty about the presidential elections and the worries about Treasury supply, "a lot of retail is on the sidelines and I think we still have investors and market participants who will probably sell strength in the short term," she said.

Some of the supply that the market has been worrying about moved a little closer yesterday when the Treasury announced the size of next week's note sales. The two-year notes to be sold Tuesday will total $15 billion, up $500 million from last month, and the five-years to be auctioned Wednesday will total $10.75 billion, which is a $250 million increase over last month's auction.

The two issues will raise $13.025 billion of new cash.

The desk head does not except the market to revisit its lows, but said it would take something major to revive he rally.

"You need to put the monetary policy carrot back out there," he said, "Right now it's a parship."

The jobless claims date for the week ended Oct. 10 is the only likely exciting news today. The government said today it will postpone the release of the September budget deficit report, which was scheduled to come out today, until next week.

The consensus forecast for unemployment claims calls for a 15,00 increase, to 398,000, following the 17,000 drop reported for the previous week.

The December bond futures contract closed 7/32 higher at 102 17/32.

In the cash market, the 7 1/4% 30-year bond was 18/32 higher, at 95 24/32-95 28/32, to yield 7.60%.

The 6 3/8% 10-year note rose 30/32, to 97 9/32-97 13/32, to yield 6.73%.

The three-year 4 5/8% note was up 13/32, at 99 21/32-99 23/32, to yield 4.73%.

Rates on Treasury bills were lower, with the three-month bill down 12 basis points at 2.92%, the six-month bill off 11 basis points at 3.16%, and the year bill 18 basis points lower at 3.31%

Discount Closes Futures Unit

Discount Corp. of New York, a primary leader in U.S. government securities, said yesterday it will close its futures subsidiary, Discount Corp. of New York Futures, during the fourth quarter.

Discount said it will transfer some of the subsidiary's customer accounts and personnel to another securities firm. The closing will result in a charge against fourth-quarter earnings of not more than $3 million.

During the third quarter, Discount had $10.9 million of pre-tax income, or $1.22 per share. That is up from $4.2 million, or 52 cents per share, during the same period last year.

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