The U.S. debt market got an early Christmas gift this week in the form of two successful note auctions.

The Treasury Department successfully loaded $28 billion of new supply onto dealers' shelves and prices surged across the board. The 30-year bond led the way, ending up more than 1 1/8 points yesterday to yield 6.21%.

Despite strong news on the economy, the five-year note auction yesterday was well subscribed, as was Tuesday's two-year sale. The issues were awarded at rates of 5.19% and 4.25%, respectively.

Treasuries rallied on the tail of the note sales, encouraged by the market's ability to absorb supply amid sips that the economy is improving and that inflation and interest rates may move higher soon.

Players approached the Treasury's auction of $1 1 billion in five-year issues cautiously because the intermediate sector of the curve had been a tough sell in recent weeks. Complicating the outlook for the five-year was the fact that most large accounts have closed their books for the year.

But demand surfaced nonetheless, mostly from accounts squaring short positions set early in the session. With the yield on the when-issued five-year note coming in lower than expected, a number of dealers who placed bets on being awarded five-year notes came up empty-handed. When it became apparent that those orders would not be filled, accounts scrambled to purchase five-year notes - trading activity that pushed prices higher across the yield spectrum.

Market observers said the five-year sale set the tone for trading into year-end.

"It was a good round of auctions and the market traded higher in response" said Charles Lieberman, director of financial markets research at Chemical Securities Inc.

Strong technicals contributed to yesterday's cash market rally. The March bond contract broke above resistance at 114.28 on its way up to 115.15, where the issue triggered a number of stop-buy orders. The improved technical environment helped push the yield on the 30-year cash bond lower, giving players more confidence to buy Treasuries.

One Chicago-based futures trader said aggressive bidding on the bond contracts led to frantic trading through the afternoon at the Chicago Board of Trade.

Economic statistics released yesterday had no visible impact on prices. The Commerce Department reported that gross domestic product advanced 2.9% in the third quarter, or $36.2 billion, stronger than an earlier estimate of 2.7%.

Market participants said the latest GDP reading was consistent with expectations for strong growth in the fourth quarter. The Treasury market shrugged off the news, having already factored in a strong finish to the year.

The market will keep an eye on this week's reports. "Good news on the economy has already been factored into bond prices and the data coming out this week will confirm that the economy is doing better," said Robert Brusca, chief economist at Nikko Securities Co. International.

In futures, the March bond contract ended up 3 1/2 points to 115.26.

In the cash markets, the 4 1/4% two-year note was quoted late yesterday Up 4/32 at 100.03-100.04 to yield 4.18%, the 5 1/8% five-year note ended Up 13/32 at 100.02-100.04 to yield 5.09%, the 5 3/4% 10-year note was up 3/4 of a point at 100.07-100.11 to yield 5.70%, and the 6 1/4% 30-year bond was up more than 1 1/8 points at 100.12-100.16 to yield 6.21%.

The three-month Treasury bill was down two basis points at 3.06%, the six-month bill was down five basis points at 3.20%, and the year bill was down four basis points at 3.44%."

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