Treasury securities prices improved a little yesterday when comments by Federal Reserve Chairman Alan Greenspan reignited the market's hopes of easing.
The gains occurred in overseas trading and in the futures market. The cash market for Treasury securities was closed yesterday in the United States for Columbus Day.
At the end of the London trading session, short-term and intermediate Treasury notes were as much as 1/8 point higher, and the 30-year bond was up 2/32 and yielded 7.51%.
Last week, Treasury prices plunged as the market gave up hopes of a near-term Fed easing. Many analysts said that since the Fed had not acted last week, the next likely opportunity for a rate cut was after the November elections.
But at a press conference Saturday in Hot Springs, Va., Greenspan said the economy was still "very sluggish" and the Fed would alter policy at any time if it seemed warranted.
"We will not, if we believe it to be necessary, abstain from actions solely because there is an election under way," he said.
Analysts said that even if the presidential election is not a constraint for the Fed, the economic news due out in the next few weeks does not seem likely to spur a Fed rate cut.
"I don't think that between now and the election there will be any earth-shattering news that will show anything different from the weakness we saw in the employment report," said Kathleen Stephansen, a senior economist at Donaldson, Lufkin & Jenrette Securities Corp. "It just raises the question of why the Fed didn't ease last week," in response to the September jobs data.
Some Treasuries traders think a rate cut by Germany's Bundesbank could give the Fed leeway to ease, since a German easing would alleviate the impact of lower U.S. rates on the dollar.
But Stephansen said Fed policy-makers were guided by domestic considerations, rather than by worries about the dollar.
In fact, she said, the Bundesbank has let short-term German rates move lower recently.
"There are easier credit conditions in Germany, and that's the reason you've seen other central banks adjusting down their short-term rates," Stephansen said. "And yes, it does pave the way for a Lombard rate cut, but I don't think that's imminent. I think it will come in November sometime."
Traders said most of the overseas price gains occurred in Tokyo, with the Treasury market retracing some of that initial improvement during an extremely quiet London trading session.
They said Sunday's U.S. presidential debate, in which Democratic candidate Bill Clinton and independent candidate Ross Perot were seen to have outperformed President Bush, seemed to have little effect on Treasury prices.
"It's absolutely dead," a London trader said. He said speculated that the full impact on the market of Greenspan's comments and the Sunday presidential debate would not be seen until New York traders returned to work today.
Another London dealer said the market's focus would return to the economic fundamentals this week as the government releases a string of indicators, including September retail sales, producer and consumer prices, and industrial production.
If the numbers are weak enough to cause a Fed rate cut, most of the gains would occur at the short end, because the long bond is still weighed down by worries about the election and the federal deficit, traders said.
And if the indicators show signs of strength, the market will probably begin to fret about the upcoming supply, including the two- and five-year note auctions later this month and the quarterly refunding auctions in early November.
The December bond futures contract closed 1/8 higher, at 103 21/32.
In the cash market, the 7 1/4% 30-year bond was 2/32 higher, at 96 25/32-96 29/32, to yield 7.51%.
The 6 3/8% 10-year note rose 5/32, to 99 2/32-99 6/32, to yield 6.48%.
The three-year 4 5/8% note was up 3/32, at 100 17/32-100 19/32, to yield 4.39%.
In when-issued trading, the 6% seven-year note was 3/32 higher, at 99 16/32-99 17/32, to yield 4.39%.
Treasury Market Yields
Monday Week Month
3-Month Bill N.A 2.67 2.94
6-Month Bil N.A. 2.85 2.97
1-Year Bill N.A. 2.97 3.09
2-Year Note 3.96 3.67 3.76
3-Year Note 4.39 4.09 4.26
5-Year Note 5.48 5.17 5.24
7-Year Note 6.06 5.76 5.80
10-Year Note 6.48 6.22 6.30
30-Year Bond 7.51 7.34 7.25