Treasury prices were unchanged to slightly higher late yesterday after early flight-to-quality gains disappeared when U.S. stock prices stabilized.
The 30-year bond gained 1/4 point to yield 7.65%, but short-term notes ended little changed from Friday's close.
Traders said activity in the Treasury market was subdued, with all the excitement occurring in the foreign exchange and stock markets.
In overseas trading, renewed weakness in foreign stock prices inspired some purchases of Treasury paper, with the buying concentrated in the front end.
The Nikkei index of Japanese stock prices fell 663.59 points, or 4.0%, to 15,884.48 overnight, and other Asian and European stock markets followed Japanese stocks lower.
"In the classic fashion, continued nervousness about global financial markets generated a bid for some Treasury securities," a London dealer said.
Treasury prices hit their session highs when the Dow Jones industrial average dropped more than 40 points in early New York trading.
But short-term prices began to drift lower when the U.S. stock market proved sturdier than overseas markets stabilized about 40 points below Friday's close.
By late in the day, U.S. stocks had retraced some of their losses and the Dow Jones average closed 28.64 points lower, at 3,303.00.
Some short-term traders also blamed the concerted central bank buying of dollars for the short end's sell-off.
The Federal Reserve and a host of other central banks bought dollars and sold marks yesterday in an attempt to bolster the dollar.
Treasury Market Yields
Monday Week Month
3-Month Bill 3.23 3.27 3.71
6-Month Bill 3.33 3.34 3.87
1-Year Bill 3.48 3.58 4.13
2-Year Note 4.23 4.34 4.96
3-Year Note 4.72 4.87 5.48
5-Year Note 5.79 5.93 6.42
7-Year Note 6.37 6.46 6.81
10-Year Note 6.88 6.96 7.22
15-Year Bond 7.25 7.32 7.50
30-Year Bond 7.65 7.67 7.83
Source: Cantor, Fitzgerald/Telerate
The intervention worked exceedingly well. Late yesterday, the dollar was quoted at 1.4930 marks, up from the session low of 1.4473 marks before the central banks intervened.
Analysts said the intervention succeeded because it was well timed. They estimated the total size of the purchases was probably only a few hundred million dollars.
The foreign exchange intervention cast a pall on the short end because some participants argued that the Fed is not likely to undermine that effort by cutting short-term rates again, as many short-term traders had hoped.
As short-term prices faded, the long end held near its highs, though, and a bond trader said the dollar's strong comeback had helped.
"You've got people saying the dollar has bottomed out," and in that case, U.S. bonds look very attractive, the trader said. He questioned whether the dollar has made a bottom, though, because the negatives that have pushed it lower, like the weak U.S. economy and low U.S. interest rates, are still in place.
The long end also benefited from a dip in the Commodity Research Bureau index and from talk that Federal Reserve Chairman Alan Greenspan would speak optimistically about inflation during today's Humphrey-Hawkins testimony.
The CRB index fell 1.29 points, to 204.51, the lowest level since last August.
"The spot and futures markets are both reflecting a slowdown in activity," said Kevin Logan, chief economist at Swiss Bank Corp. "It's a little more information that suggests the economy is weak and prices are not going up very fast."
The September bond futures contract closed 9/32 higher at 102 13/32.
In the cash market, the 30-year 8% bond was 7/32 higher, at 103 26/32-103 30/32, to yield 7.65%.
The 7 1/2% 10-year note rose 1/16, to 104 7/32-104 11/32, to yield 6.88%.
The three-year 5 7/8% note was up 1/32, at 102 30/32-103, to yield 4.72%.
Rates on Treasury bills were higher, with the three-month bill up two basis points at 3.19%, the six-month bill up four basis points at 3.26%, and the year Bill one basis point higher at 3.37%.