A stronger-than-expected durable goods report for November put a stop to the market's rate-cut euphoria Tuesday, ending a three-session rally that shaved 23 basis points from the 30-year bond.
The long bond did manage small gains, however, finishing the day up 1/16 to yield 7.51%.
The only real activity during the abbreviated Christmas Eve session occurred right at the New York open, when the Commerce Department reported that November's durable goods orders rose 1.2%, instead of the 1.5% decline market participants were expecting.
That was enough to end the streak of big price gains resulting from the Federal Reserve's decision last week to cut the discount rate by 1% and the Fed funds rate by 1/2%. Prices dropped about 1/8 point on the long end, then slowly retraced their steps through an extremely quiet session.
The durable goods increase was the second consecutive monthly advance, following a revised gain of 2.6% in October, which was originally reported as a 3% increase. September orders fell 4.3%.
A large part of the gain in November orders came in transportation equipment, as increases in aircraft and parts offset declines in motor vehicles and military goods. Unfilled orders fell 0.5% to $491.4 billion, the lowest level in two years and the third consecutive monthly decrease.
Cheryl Rubin, a market economist at Lehman Brothers, said that although these numbers are fairly encouraging for the economy, it should not be expected that one month's report will change economists' forecasts of minimal growth in the coming year.
"Durable goods is a very volatile report," Ms. Rubin said. "The numbers are higher than expected, especially considering the large decrease in defense orders. What is encouraging is the increase made in primary metals, after three straight months of decline."
One bond trader said the durable goods number could be the last market mover of the year, and predicted that prices "will stay at this level perhpas until the beginning of next year."
A note trader said there may be a bit more activity today and tomorrow, mostly reflecting yearend profit taking. But the agreed that the long end of the market "has a nice price to it right now, and that should stay until next year."
Treasury Market Yields
Tuesday Week Month
3-Month Bill 3.90 4.20 4.54
6-Month Bill 4.01 4.29 4.56
1-Year Bill 4.16 4.36 4.72
2-Year Note 4.83 5.00 5.45
3-Year Note 5.11 5.34 5.79
4-Year Note 5.24 5.45 5.88
5-Year Note 6.00 6.23 6.54
7-Year Note 6.47 6.71 7.00
10-Year Note 6.86 7.17 7.40
15-Year Bond 7.25 7.79 7.71
30-Year Bond 7.51 7.74 7.94
Source: Cantor, Fitzgerald/Telerate
Echoing the concern of many market participants, the trader added, "What really concerns me is the very real possibility that the White House may initiate an election-year quick-fix stimulus for the economy."
The March bond future contract closed at 103 11/32, up 1/32 on the day.
In the cash market, the 30-year 8% bond was 1/16 higher, at 105 20/32-105 24/32, to yield 7.51%.
The 7 1/2% 10-year note was unchanged at 104 13/32-104 17/32, to yield 6.86%.
The three-year 6% note was also unchanged from Monday's level of 102 9/32-102 11/32, to yield 5.11%.
In when-issued trading, the 5% two-year note was down 1/32 at 100 9/32-100 10/32 to yield 4.83%.
The when-issued 6 1/8% five-year note was unchanged at 100 15/32-100 17/32 to yield 6%.
Rates on Treasury bills were higher, with the three-month bill up seven basis points at 3.82%, the six-month bill up four basis points at 3.89%, and the year bill up four basis points at 3.99%.