A myriad of domestic and international events combined to push the Treasury market lower yesterday in extremely thin volume.
The long end of the curve experienced the largest declines, represented by the 30-year bond, which ended down almost a point to yield 6.29%.
Fresh evidence that the U.S. economy is on firm footing plus upward pressure on commodities prices nudged Treasuries lower. The government reported yesterday that consumer spending patterns keep on improving.
Solid news on the economy continues to give dealers and retail investors reason to sell government-backed paper, particularly at the long end of the yield curve.
The weak technical state of the market added to the declines as players tested the downside of recent ranges. THe March bond contract came under steady attack as technical chartists sold contracts in an attempt to break below longstanding support levels.
Events abroad were a contributing factor to the market's declines as news of turmoil in Russia led to extreme volatility in world currency markets, particularly in Germany.
"Depending on what they were focusing on, market players found reasons to sell the market," said one head trader at a primary dealership. "The technicals, the fundamentals, and the international news were bearish for the bond market."
Market observers believe a lack of buyers exacerbated declines yesterday, noting that activity was extremely light with many potential players having closed their books for yearend. They also noted that the market's weakness made Treasuries more susceptible to the news than would normally be the case.
"Lack of interest made the market vulnerable to the little bit of news we got," said Matthew Alexy, senior market strategist at CS First Boston Corp. Alexy noted that news of stronger U.S. retail sales had already been factored into prices and that market technicals have been weak in recent sessions. "Not much has changed," he said.
On the fundamental front, sales at the retail level posted an increase in November, rising for the eighth consecutive month, the Commerce Department said. Retail sales increased 0.4% to $178.9 billion after rising 1.8% in October to $178.2 billion. The eight-month string of increases is the longest streak of increases since the record-keeping was instituted, Commerce said.
Market players accepted the news as a confirmation that sales remain an engine of growth in the economy. The report also supports the view that 1993 will end on solid footing, with gross domestic product growth of 4.0% or more.
Gyrations in commodities prices, particularly oil, played a role in the market's downtrade yesterday, but for the most part, activity was dominated by trading off technical chart points.
On the international front, news organizations reported plans for a far-reaching program of policies that the leader of Russia's right-wing party is apparently supporting. Threats from Vladimir Zhirinovsky, who vaulted to the top of a parliamentary election this weekend, reportedly include stepping up production of nuclear weapons, wresting Alaska from the United States, and attacking Germany.
While Treasury market players are not taking the reported threats too seriously, Fred Leiner, market strategist at Continental Bank, said the news hurt the long end of the Treasury market to the benefit of teh short end. The bill sector of the yield curve has benefited slightly from safe-haven buying as foreign investors attempted to shiled their holdings from volatility in currency markets.
"The market will watch events in Russia very closely and see how they play out," Leiner said.
The Treasury Department today will annouce the size of next week's two-and five-year note auctions. Observers said the market expects the Treasury Department to keep the offerings unchanged from last month, when the government sold $17 billion two-year notes and $11 billion five-year notes.
In futures, the March bond contract ended down 19/32 to 115.24.
In the cash markets,the 41 1/4% two-year note was quoted late yesterday down 1/32 at 100.00-100.01 to yield 4.23%. The 5 1/8% five-year note ended down 5/32 at 99.21-99.23 to yield 5.18%. TYhe 5 3/4% 10-year note was down 14/32 at 99.14-99.18 to yield 5.80%, and the 6 1/4% 30-year bond fell 29/32 to 99.07-99.11 to yield 6.29%.
The three-month Treasury bill was down one two basis point at 3.05%. The six-month bill was unchanged at 3.26%, and the year bill was also unchanged at 3.49%.Treasury Market Yields Prev. Prev. Wednesday Week Month3-Month Bill 3.09 3.14 3.096-Month Bill 3.34 3.35 3.241-Year Bill 3.61 3.56 3.372-Year Note 4.23 4.16 4.053-Year Note 4.55 4.47 4.395-Year Note 5.18 5.08 4.967-Year Noten 5.35 5.23 5.1810-Year Note 5.80 5.67 5.6230-Year Note 6.29 6.16 6.16 Source: Cantor, Fitzgerald/Telerate