Short-term Treasury prices continued to outperform the long end yesterday as trading slowed ahead of today's employment data.

Late in the afternoon, the 30-year bond was 1/8 point lower to yield 7.90%, but short-term notes were closing with small gains.

Traders said activity slowed to a trickle and consisted mostly of dealers making final adjustments to their positions in anticipation of this morning's October employment report.

The jobs data will give the market its first comprehensive look at how the economy fared last month.

Participants hope the statistics will be weak enough to warrant another easing in monetary policy by the Federal Reserve, in addition to the cut in funds most people believe occurred Wednesday, and short-term securities benefited from those hopes yesterday.

"They'remaking the prices stay out in front of the Fed," a coupon trader said. "They anticipated the last ease and now they're anticipating the next one."

"It would take a high non-farm payrolls number to take the steam out of this market ahead of the refunding," he added.

Economists surveyed by The Bond Buyer on average expect a 20,000 gain in October's non-farm payrolls, little changed from the 24,000 increasein September.

The 19 economists' forecasts ranged from a 75,000 decrease to a think the unemployment rate will rise 0.1-point, to 6.8%, and a few expect a 0.2% increase, to 6.9%.

Frederick Leiner, a market strategist at Continental Illinois, said the bond market was risking a major disappointment, especially given the supply coming up next week.

The Treasury will sell $38 billion of securities at next week's quarterly refunding, including $12 billion of long bonds.

"Assuming the Fed's eased by 25 basis points, if the non-farm payroll data came in much stronger than expected, I think we'd see a significant decline in the long end going into next week's bond auction," Mr. Leiner said. "People would wonder whether or not an ease was such a good idea."

On the other hand, he said the 30-year would probably stall out at its old high, 7.77%, if the jobs statistics are weaker than expected.

The apparent Fed ease on Wednesday was surrounded by confusion. The Fed seemed to be letting fed funds move lower but it did not signal an easing with a round of repurchase agreements, as it usually does.

Yesterday, White House spokesman Marlin Fitzwater said the Fed had eased 25 basis points on Wednesday and might ease again. But traders said that statement was just part of the usual Bush administration pressure on the Fed and not a definite confirmation of Fed policy.

So after the employment report today, traders will be watching closely to see what the Fed does and how funds are trading.

Some traders argued that the stealthy way the Fed moved Wednesday suggests the policy-makers will be open to another 25-basis-point cut in funds, or even a cut in the discount rate, if nonfarm payrolls show enough weakness.

But Mr. Leiner was skeptical about the possibility of getting a second ease out of the Fed.

He pointed out that almost all of the Fed's moves over the past couple of years have been 25 basis points to size.

"I don't see why they should panic," Mr. Leiner said. "They've been worried about the economy in the past and only once, out of 17 times, did they feel it necessary to cut the funds rate by more than 25 basis points."

Some of yesterday's economic news was less than favorable for the bond market, but traders seemed to ignore most of it.

The 47,000 plunge in weekly jobless claims was an unpleasant surprise, but after a brief dip, prices recovered when traders decided Columbus Day had distorted the number.

September factory orders dropped 1.7%, in line with expectations, and participants ignored the Chicago purchasing managers' index rise to 56.2% in October from September's 55.5% reading.

The market even took the higher-than-expected money supply numbers in its stride. The New York Fed reported that the nation's M1 money supply rose $9.6 billion to $882.6 billion in the week ended Oct. 21; the broader M2 aggregate gained $8.8 billion, to $3.4 trillion; and M3 increased $7.1 billion, to $4.1 trillion, in the same period.

Late yesterday, traders got an early look at one of today's numbers. The October purchasing managers report was released today because of a computer problem; the index fell to 53.5% from the 55.0% September reading, in line with market expectations.

The December bond future contract closed 1/8 lower at 99 26/32.

In the cash market, the 30-year 8 1/8% bond was 1/8 lower, at 102 11/32-102 15/32, to yield 7.90%.

The 7 7/8% 10-year note rose 1/16, to 102 24/32-102 28/32, to yield 7.45%.

The three-year 6 7/8% note was up 1/16, at 102 7/32-102 9/32, to yield 5.97%.

In when-issued trading, the 30-year bond to be sold next Thursday was bid at 7.89%, the 10-year note to be sold Wednesday was bid at 7.45%, and the three-year to be auctioned Tuesday stood at 6.01%.

Rates on Treasury bills were mixed, with the three-month bill up one basis point at 4.84%, the six-month bill up one basis point at 4.85%, and the year bill one basis point lower at 4.83%.

Also, for the week ending Wednesday, the federal funds rate averaged 5.10%, down from 5.24% the previous week, according to the New York Fed.

PSA Group Looks at Govvies

The Public Securities Association said yesterday it formed an ad hoc committee to evaluate practices and regulations in the U.S. Treasury market.

The committee is headed by Stephen Thieke, president of J.P. Morgan Securities and includes representatives from primary dealers and from other types of firms involved in the Treasury market.

According to the PSA, committee members have already begun to consider four issues: "different aucton techniques such as Dutch auctons, the primary dealer structure, rights and responsibilities in the auction process, and large position reporting."

The committee will also consider other issues, including recommendations that result from studies currently being done by the Fed. the Treasury and the SEC.

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