Short-term Treasury notes closed a little lower yesterday as this week's heavy schedule of note and bill auctions cast a pall over the thinly traded market.
Late in the afternoon, the 30-year bond was unchanged and yielding 8.5%, while short-term and intermediate notes were as much as 1/8 point lower.
Traders said the short-term and intermediate area came under the most pressure because that is where the supply is coming. The Treasury will sell $12.5 billion of two-year notes today and $9.25 billion of five-year notes tomorrow, with the two auctions raising a total of $4.45 billion of new cash.
The when-issued notes were trading at attractive levels yesterday, with the two-year yielding almost 7% and the five-year close to 8%, but traders expect the yields to go even higher since retail investors have shown little interest in the securities so far.
"The Street doesn't have a dynamic bid for these auctions," a government note trader said.
The trader said he thought commercial banks had already gotten all the notes they needed, "and I don't see any moms and pops jumping up to get involved."
The two-year sale is seen as particularly tricky because last month, a few participants scooped up a large share of the two-year notes and other dealers had a hard time covering their short positions.
That recent history has made dealers nevous about bidding at today's auction. And as of yesterday, traders estimated that short positions in the when-issued notes were running below normal levels.
"Given the very light trading volume Friday and [yesterday], there hasn't been much pre-selling of these issues," said Joseph Liro, a money market economist at S.G. Warburg & Co. "The Street short-[position] you typically have going into these issues hasn't materialized."
The when-issued two-year notes recently were quoted at 6.99%, and Mr. Liro estimated the notes might rise to a 7.05% or 7.06% yield by the bidding deadline today.
"After wer get durable goods and consumer confidence, I think we're going to see them back up a little," Mr. Liro said.
This morning, the Commerce Department reports on May durable
Treasury Market Yields
Monday Week Month
3-Month Bill 5.69 5.75 5.55
6-Month Bill 6.00 6.07 5.85
1-Year Bill 6.33 6.37 6.07
2-Year Note 6.88 6.97 6.64
3-Year Note 7.38 7.39 7.04
4-Year Note 7.57 7.58 7.28
5-Year Note 7.95 7.94 7.66
7-Year Note 8.17 8.17 7.90
10-Year Note 8.31 8.29 8.05
20-Year Bond 8.51 8.49 8.28
30-Year Bond 8.50 8.49 8.28
Source: Cantor, Fitzgerald/Telerate
goods orders and the Conference Board releases its index of June consumer confidence.
Treasury prices began the New York session with losses accumulated overnight in London and Tokyo.
But the long end got a boost in midday from the Commodity Research Bureau price index, which was off almost a full point.
The CRB index closed .77 lower yesterday, at 210.25, after dropping 2.53 points on Friday.
James Nevler, a fundamental analyst at the bureau, said the index was getting near the 209.72 low posted in February.
The weakness in commodity prices is widespread, Mr. Nevler said. He noted that the index, which uses 1967 prices as its base, is now "at levels consistent with where it was in the late 1970s."
The ministers from the Group of Seven nations issued a wishy-washy communique after their Sunday meeting in London, just as Bundesbank President-elect Helmut Schlesinger predicted last week, and the statement had no effect on the Treasury market.
The ministers seem to have spent most of their time talking about the possibility of letting the Soviet Union join the group.
The statement did say that the nations would take "appropriately concerted action" in the foreign exchange markets if necessary.
Concerted intervention against the dollar can hurt the Treasury market because the central banks usually sell Treasuries to finance their dollar sales, but traders yesterday did not seem concerned about this prospect.
A bill trader said bills maturing in three months or less yesterday got a bid as portfolio managers came in to buy bills for quarter-end window dressing and also got a little boost from the weakness in the stock market. The Dow Jones industrial average closed 52.55 points lower at 2913.01.
"If you get a little more pressure in equities, we'll see a little more interest in bills," the trader said.
The September bond future contract closed 1/16 higher at 92 21/32.
In the cash market, the 30-year 8 1/8% bond was unchanged, at 95 24/32-95 28/32, to yield 8.50%.
The 8% 10-year note was steady at 97 25/32-97 29/32, to yield 8.31%.
The three-year 7% note was down 3/32, at 98 30/32-99, to yield 7.38%.
In when-issued trading, the five-year note to be sold tomorrow was offered at 7.95%.
Rates on Treasury bills were mixed, with the three-month bill down three basis points at 5.55%, the six-month bill up one basis point at 5.76%, and the year bill one basis point higher at 5.98%.