Despite retail sales figures yesterday suggesting that recovery is moving along apace, interest in the long end of the market continued to push prices higher.
The when-issued long bond ended the New York session up 15/32, to yield 8.16%.
The bond and long notes were in negative territory early yesterday morning, after the Commerce Department reported retail sales for July jumped a strong 0.5%. And with a revision to the June figure, showing a gain of 0.1% from the previously reported 0.2% decline, the news marked the third monthly increase in a row and contributed to a picture of an improving economy.
Excluding the automobile sector, which showed particularly strong growth for the month, retail sales rose 0.3%, in line with expectations.
"It indicates that the consumer is still leading the recovery, which is something the bond markets don't like," said Mike Niemira, a business economist with Mitsubishi Bank. Mr. Niemira said the figure also might convince analysts who are looking for another quick ease that they might have to wait a while longer.
"I'm not sure there's a need right now for another ease," he said. "Right now we'll probably sit tight and see how the numbers play out over the next month."
The long bond shed more than 1/4 point on the retail sales news, but as the selling brought yields higher, buyers appeared.
"It's a continuation of the sentiment that we've seen every time there's the slightest bit of a sell off," said Steve Slifer, a money market economist at Lehman Brothers. "It brings out the buyers."
Slifer said the prevailing view in the market continues to be that recovery
Treasury Market Yields
Tuesday Week Month
3-Month Bill 5.44 5.56 5.74
6-Month Bill 5.62 5.69 5.97
1-Year Bill 5.76 5.87 6.27
2-Year Note 6.44 6.56 6.85
3-Year Note 6.81 6.86 7.25
4-Year Note 6.95 7.02 7.43
5-Year Note 7.43 7.53 7.88
7-Year Note 7.73 7.79 8.11
10-Year Note 7.90 7.95 8.25
20-Year Bond 8.14 8.15 8.44
30-Year Bond 8.16 8.17 8.44
Source: Cantor, Fitzgerald/Tolerate
will be so weak, it will force the Federal Reserve Board to ease again. With inflation indicators pointing south, interest in the long end is hard to kill.
Today's consumer price index will provide another peek at where inflation might be headed. But yesterday the market got good news on that front in the form of a steep decline in the Commodity Research Bureau index, which fell about 1.79 points to 208.63.
Mr. Slifer said he expects inflation to decline for at least the next year in the wake of the apparent economic recovery. Combined with extremely sluggish money supply growth, he said the prevailing view is for continued declines in interest rates.
The Fed is scheduled to meet next week, but most analysts say they expect only the adoption of a bias toward easing, rather than an immediate lowering of rates. A lowering could come in early September, when August employment figures are released.
The September bond future contract closed 3/8 higher yesterday, at 96 24/32.
In the cash market, the when-issued 30-year 8 1/8% bond was 15/32 higher, at 99 13/32-99 17/32, to yield 8.16%.
In other when-issued trading, the 7 7/8% 10-year note rose 9/32, to 99 22/32-99 26/32, to yield 7.90%, and the three-year 6 7/8% note was up 3/32, at 100 3/32-100 5/32, to yield 6.81%.
Rates on Treasury bills were mixed, with the three-month bill unchanged at 5.31%, the six-month bill up one basis point at 5.409%, and the year bill unchanged at 5.46%.