Treasury prices ended narrowly mixed yesterday after the market passed a quiet session waiting for the economic reports due out today and tomorrow.
Late in the afternoon, the 30-year bond was off 1/8 point and yielded 7.80%, while short-term notes were closing with marginal gains.
The Treasury market got a boost during the morning from declines in stock and commodity prices.
The short end of the market also seemed to shake off worries about Federal Reserve Vice Chairman David Mullins' comments Tuesday, which originally were read as a message that the Fed would hold policy steady.
Despite the initial reaction to Mr. Mullins' remarks, "everbody's expecting another 25-basis-point ease," a government coupon trader said. "That's what they think and that's why they're staying long."
During the afternoon, stock and commodity prices reversed course, and long-term Treasuries drifted lower in response.
The West Texas Intermediate oil futures contract for January delivery closed 10 cents higher, at $19.51 a barrel, after having broken below $19 a barrel earlier in the day. And the Dow Jones Industrial Averaged ended with a 1.56 point gain after having been down about 20 points earlier in the day.
Other negatives for the bond market included renewed talk of Japanese investors selling Treasury Strips and reports for the second day in a row that the Fed was selling short-term notes under the table.
A veteran Treasury trader said the overnight drop in Japanese stocks had unnerved long-term traders. The Nikkei index fell 450.16 points, or 2%, to 21,502.90.
"If their stock market continues to go south, there's a great fear they'll begin to sell Strips again," he said. As the long end underperformed earlier in the fall, there were persistent reports that it was being undermined by Japanese selling of Strips.
Traders said the normal dullness ahead of a big indicator was reinforced yesterday by end-of-the-year lethargy.
"What we're seeing is a few big accounts in the market and a lot of dealers not wanting to take much risk," the coupon trader said.
Since dealers do not want to accumulate positions, any time an account sells them securities, they turn right around and sell it to someone else, the trader said.
The market is anticipating mostly good news from today's indicators.
According to a Bond Buyer survey, economists on average expect a 0.3% increase in November producer prices either including or excluding
Treasury Market Yields
Wednesday Week Month.
3-Month bill 4.24 4.42 4.76
6-Month Bill 4.28 4.45 4.86
1-Year Bill 4.41 4.56 4.97
2-Year Note 5.01 5.21 5.62
3-Year Note 5.39 5.56 5.97
4-Year Note 5.52 5.67 6.07
5-Year Note 6.23 6.28 6.66
7-Year Note 6.71 6.72 7.06
10-Year Note 7.19 7.18 7.40
15-Year Bond 7.55 7.54 7.69
30-Year Bond 7.80 7.84 7.86
Source: Cantor, Fitzgerald/Telerate
food and energy and a 0.1% decline in last month's retail sales. The anticipated 31,000 decline in new jobless claims may be a little harder for the market to swallow.
The key number is the producer price index.
A 0.3% gain would be a big improvement over the 0.7% spike in the index and the 0.5% gain in the core rate in October.
An increase of 0.3% would show "continued moderation in the underlying rate of inflation, which suggests there's no real threat of accelerating prices in the economy and hopefully opens the door to further easing during the month," said Mark Green, an economist at Wells Fargo Bank.
Mr. Green expects a 0.3% gain, in line with the consensus forecast, and said some of that increase reflects higher food prices caused by the white fly infestation in California.
Michael Niemira, a business economist at Mitsubishi Bank, is forecasting a 0.5% increase in the core rate, at the high end of expectations, because he thinks tobacco companies' price increases will add as much as 0.3-point to the core.
But traders said yesterday the bond market would probably discount a bad price report since commodity prices have softened so dramatically in recent weeks.
Also today, the Treasury will sell $12.25 billion of year bills. The auction is expected to go well, although not as well as Monday's three- and six-month sale. Year-end buying is keeping a bid in the bill sector, a trader said.
The March bond future contract closed 3/16 lower at 100 13/32.
In the cash market, the 30-year 8% bond was 3/16 lower, at 102 5/32-109 9/32, to yield 7.80%.
The 7 1/2% 10-year note rose 1/16, to 102-102 4/32, to yield 7.19%.
The three-year 6% note was up 1/16, at 101 18/32-101 20/32, to yield 5.39%.
Rates on Treasury bills were lower, with the three-month bill down three basis points at 4.15%, the six-month bill off four basis points at 4.15%, and the year bill two basis points lower at 4.23%.