The government bond market rallied on Wednesday after a successful auction of five-year Treasury notes.

In late afternoon trading, the Treasury's 30-year bond was up about 7/8 point in price to yield 6.94%, down from 6.99% on Tuesday.

Although rates fell on the day, they have increased sharply over the past month - and Wednesday's auction illustrated that rise.

The Treasury sold $11 billion of five-year notes at a yield of 5.39%. The previous five-year note sale, on April 28, produced a yield of 5.18%.

Indicating strong demand for the new security, the Treasury received more than triple the number of bids as accepted offers, up slightly from April.

There had been some question whether dealers would bid aggressively for the notes.

Some dealers were burned late Tuesday, when the market turned sour on the two-year notes auctioned by the Treasury earlier in the day.

"The pre-auction talk was not too good," said John Canavan, market analyst at Stone & McCarthy Research Associates.

Unlike Tuesday's auction, though, the five-year met strong bidding after the sale, sending the yield down to 5.34% in when-issued trading.

Mr. Canavan said the successful auction served as a catalyst for pushing the 30-year bond past technical trading resistance points.

Noncompetitive bids, reflecting retail demand, totaled $558 million, down $20 million from the previous auction.

"There continues to be caution on the retail side," said Astrid Adolfson, economist at MCM MoneyWatch.

Economic news also bolstered bonds. The Commerce Department reported that durable-goods orders were unchanged in April from March. Economists had forecast a 1% rise.

Reports that President Clinton and House leaders are near a compromise on the President's economic program also helped bond prices.

The short end also gained, as fears of a Federal Reserve tightening abated. The bond-equivalent yield on three-month Treasury bills fell 4 basis points to 3.11%.

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