Short-term prices outperformed <

the rest of the market yesterday as Treasury securities staged a small recovery from Tuesday's big selloff.

Late in the day, short-term notes <

were up 1/8 to 1/4 point, while the 30-year bond was 1/4 point higher to yield 7.89%.

Treasury prices plunged Tuesday <

in response to some stronger-than-expected economic reports and news that Saudi Arabia favored higher prices for crude oil.

But the concern about rising oil <

prices and the possibility that they could push inflation higher seemed to have subsided yesterday, and the benchmark U.S. crude, the West Texas Intermediate oil futures contract for July delivery, closed eight cents lower at $21.92.

Some traders argued yesterday's <

gains showed the market was bouncing back from an oversold condition.

"It seems as if the Street got a little <

overzealous to the downside" in recent sessions, a government coupon trader said.

Steve Slifer, a money market <

economist at Lehman Brothers, said trading was so thin yesterday, "I would hesitate to draw many conclusions."

He added that after the battering <

the Treasury market took late last week and Tuesday, he expects participants to withdraw to the sidelines and wait for next Friday's May employment report.

Given the recent spate of stronger-than-expected <

indicators, "I can't see people going back and changing their minds #based] on the numbers between now and next Friday," Mr. Slifer said. "We're here and we'll waffle around here for a while."

The short end began to outpace <

the rest of the market at midday when Federal Reserve Governor Edward Kelley hinted that last week's Wall Street Journal report on Fed monetary policy might contain some inaccuracies.

In testimony before a House <

Banking subcommittee, Mr. Kelly and another Fed governor, Wayne Angell, said the minutes of last week's meeting had been leaked to the Journal.

Last Thursday, Treasury prices <

fell after the Journal reported Fed policymakers had voted against easing at the meeting and also decided to switch to a symmetrical directive, rather than one favoring further easing.

Mr. Angell and Mr. Kelley refused <

to comment on the Journal's account, but Mr. Kelley said such newspaper articles are "seldom entirely accurate."

Traders said Mr. Kelley's remarks <

initially aroused hopes that another Fed easing was more likely than the Journal article suggested.

Traders said strong demand for <

five-year notes had been a big plus at the short end, as had the Federal Reserve's bill pass, in which it purchased bills for its own account to add reserves to the monetary system.

Most participants expected the <

Fed to buy notes or bonds -- rather than bills -- in part because of all the talk out of Washington earlier this year about cutting back on long-term supply in order to lower long-term yields, and long-term Treasuries dipped briefly early in the afternoon when the Fed announced it was buying bills.

A note trader said the when-issued <

five-year notes had an "unearthly bid" yesterday.

"It seems as if there was a guy <

with a program -- or multiple guys with programs" that involved buying five-years, the trader said.

The coupon trader agreed trading <

in the five-years had been heavy and said hedge funds took some of the notes, while some were bought as part of a swaps deal.

But he said the five-year's gains <

were exaggerated by thin market conditions. "Once you began trying to buy #the five-year], it scampered away from you."

The coupon trader said today's <

uptrade looked like a correction in a downward trend, rather than the start of a new move to the upside.

The trader predicted it would <

take a larger-than-expected increase in this morning's weekly jobless claims report to keep the rally going.

<

Treasury Market Yields

Prev. Prev.

Wednesday Week Month <

3-Month Bill 3.76 3.65 3.78

6-Month Bill 3.95 3.79 3.96

1-Year Bill 4.18 4.06 4.29

2-Year Note 5.24 5.06 5.40

3-Year Note 5.80 5.66 5.91

4-Year Note 6.69 6.53 6.88

5-Year Note 6.72 6.54 6.89

7-Year Note 7.07 6.91 7.23

10-Year Note 7.41 7.25 7.59

15-Year Bond 7.67 7.54 7.82

30-Year Bond 7.89 7.80 8.06

Source: Cantor, Fitzgerald/Telerate <

Economists surveyed by The Bond <

Buyer on average expect a 2,000 increase in claims, to 408,000. The trader suggested that on a number less than 415,000, "you'll see some stuff for sale."

Yesterday's only indicator, the <

April durable goods report, had little impact, even though the gain was stronger than expected.

Orders for durable goods rose <

1.4% in April, following the revised 2.3% March gain, when the consensus forecast called for only a 0.6% increase, but analysts said the April gain was not as impressive as it looked on the surface.

"All the strength was in the defense <

and transportation components, with all the other key areas of durable goods registering declines," said Kevin Flanagan, an economist at Dean Witter Reynolds.

Transportation orders rose 6.1% <

and defense capital goods jumped 21.6%. Excluding defense orders, April durables were up only 0.2%, and excluding transportation, orders were down 0.2%.

Mr. Flanagan said it was disturbing <

that nondefense capital goods, a measure of future capital spending, fell 6.8%, and the backlog of unfilled orders declined again in April. "It would appear demand in the pipeline is nonexistent as far as durables go," he said.

The June bond futures contract <

closed 9/32 higher at 99 30/32.

In the cash market, the 30-year <

8% bond was 7/32 higher, at 101 2/32-101 6/32, to yield 7.89%.

The 7 1/2% 10-year note rose 3/16, <

to 100 15/32-100 19/32, to yield 7.41%.

The three-year 5 7/8% note was up <

3/16, at 100 4/32-100 6/32, to yield 5.80%.

In when-issued trading, the 5 1/8% <

two-year note was 3/16 higher, at 99 24/32-99 25/32, to yield 5.24%, and the five-year 6 3/4% note was up 7/32, at 100 2/32-100 4/32, to yield 6.72%.

Rates on Treasury bills were lower, <

with the three-month bill down five basis points at 3.70%, the six-month bill off six basis points at 3.84%, and the year bill six basis points lower at 4.03%.

<

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