Thin volume yesterday amplified the market's generally positive tone, leading to half point gains at the long end.
The 30-year bond finished the New York session up 15/32 point, to yield 7.38%. Notes were mostly higher as well, but bills lost some ground after a sloppy auction.
Market sources said there were no clear driving forces behind the price gains at the long end, with little in the way of news or economic indicators arriving yesterday or expected during the holiday week.
Supply concerns were a problem early in the day, as the Treasury prepared to auction $24.8 billion in three- and six-month bills. In addition, $15.5 billion in two-year notes are on tap for today, and $11.25 billion in five-year notes are scheduled for auction tomorrow.
Traders said they were worried the short end would suffer under all that supply weight, but prices rose instead.
"There was concern about the two- and five-year auction. Then the market rallied in everybody's faces, and that concern faded pretty quickly," said Fred Leiner, a market strategist at Continental Bank. In late trading yesterday, the when-issued two-years were quoted at 4.72%, and the when-issued fives were bid at 6.07%.
Leiner said some of the unexpected support at the short end may have come from rumors early yesterday that foreign central banks were buying in the two- and five-year sectors.
He said once the March futures contract pushed through the 104.15 mark, which had been the upper range in recent days, "the buying seemed to feed on itself." The contract closed 19/32 higher at 104.28.
But the auctions themselves were said to be somewhat disappointing, with below-normal bid covers of 2.53 times on the three-months and 2.77 times for the six-months.
The market has maintained a positive tone over the past several weeks, with traders attributing the sunnier outlook to improved expectations of where the economy is headed. Although optimistic economic projections would normally dampen the Treasury market's mood, for now the new is being greeted favorably because it may convince President-elect Bill Clinton to scale back plans for a fiscal stimulus package, which the market fears could reignite inflation.
In that environment, thin trading associated with the holidays has the effect of exaggerating market trends, augmenting the firmer tone. Market sources say the rest of the week is likely to mirror yesterday's quiet session, as most customers close their books for the end of the year.
The only indicator released yesterday was the federal budget deficit for November, which came in at the low end of economists' expectations. The government ran a $32.73 billion shortfall for the month, compared to a $44.68 billion gap during November last year.
November's deficit brings the year-to-date figure in fiscal 1993 to $81.6 billion, compared to an $81.3 billion gap at the same time last year. So far in fiscal 1993, government outlays have totaled $233.06 billion, while receipts have totaled $151.47 billion.
Because it still lacks renewed spending authority from Congress, the Resolution Trust Corp. again took in more money than it spent in November. The $3.6 billion surplus for the month brings the agency's surplus to $6.2 billion for the year.
In the cash market yesterday, the 7 5/8% 30-year bond was 15/32 higher, at [102.sup.24]UF32-102 28/32, to yield 7.38%.
The 6 3/8% 10-year note was up 7/32, at 97 20/32-97 24/32, to yield 6.69%.
The three-year 5 1/8% note gained 1/32, at 99 29/32-99 31/32, to yield 5.13%.
Rates on Treasury bills were mixed, with the three-month bill up four basis points at 3.19%, the six-month bill unchanged at 3.34%, and the year bill one basis point higher at 3.54%.
Treasury Market Yields
Monday Week Month
3-Month Bill 3.23 3.30 3.29
6-Month Bill 3.42 3.50 3.52
1-Year Bill 3.66 3.83 3.74
2-Year Note 4.60 4.79 4.62
3-Year Note 5.13 5.28 5.19
5-Year Note 6.04 6.14 6.06
7-Year Note 6.37 6.49 6.47
10-Year Note 6.69 6.82 6.83
30-Year Bond 7.38 7.45 7.54