Treasury prices fluctuated within a narrow range yesterday as the market slowly got going again after the long holiday weekend.
Late in the afternoon, the 30-year bond was 1/4 point lower, to yield 7.53%.
For most of the day, prices showed tiny gains because of renewed hopes for a Federal Reserve rate cut and reports that the Fed was purchasing intermediate notes under the table.
A Fed easing came back into the picture over the weekend when Fed Chairman Alan Greenspan said the presidential election was not a constraint on Fed policy-making.
U.S. traders said they were not that impressed by Greenspan's comments.
It's just talk, and people are focused more on the elections and near-term supply, " a coupon trader said.
The market's gains disappeared in mid-afternoon after the Johnson Redbook survey showed a 1.2% increase in department store sales during the first week of October.
"The Johnson Redbook squashed people's hopes for a Fed easing soon," said Astrid Adolfson, an economist at McCarthy, Crisanti & Maffei Inc.. "You saw that at the front end, especially the two-year, which really got hit."
A note trader said retail investors started selling after the number was released. He noted that activity was so thin yesterday that it didn't take much selling to depress prices.
"We were sitting on support all day," the trader said. "The only thing that kept the market going was the Fed buying fives and sevens under the table."
The Treasury market has had a sour tone recently. Last week, prices deteriorated steadily as participants gave up hope of seeing a Fed rate cut anytime soon.
Traders said yesterday there are plenty of other reasons to dislike the bond market right now, including the presidential elections and the quantity of new Treasury securities that will be auctioned over the next month. Many traders expect the long bond to continue to deteriorate as the election approaches, with the 73/4% yield often cited as a destination.
"The market's turned really negative and ugly," Adolfson said. " We have a long bond yielding more than 7.50% when the economy's barely holding its head above water."
A coupon trader said the market's negative mood means it will respond more to bad news than good news in this week's economic reports.
"If they come a little weaker, the market might trade up, but then there would be selling into it." he said. "Either way, there'll probably be selling."
Economists on average expect today's report on September retail sales to show a 0.5% gain, offsetting the 0.5% decline posted in August.
The survey found a consensus forecast of a 0.3% rise in September producer prices and a 0.2% increase in the core rate, excluding food and energy prices. But some analysts are predicting increases of as much as 0.5% in the overall price index, citing higher gasoline and tobacco prices.
Also today, auto manufacturers will report their sales figures for the first 10 days of October. Car sales jumped to a 6.8 million annual rate in late September, but economists thought the improvement had to do with the closing of the model year. They expect sales in early October to drop back to a 6.1 million pace.
The December bond futures contract closed 3/32 lower at 103 18/32.
In the cash market, the 7 1/4% 30-year bond was 1/4 lower, at 96 17/32-96 31/32, to yield 7.53%.
The 63/8% 1 0-year note fell 3/32, to 98 31/32-99 3/32, to yield 6.50%.
The three-year 4 5/8% note was down 3/32, at 100 14/32-100 18/32, to yield 4.43%.
In when-issued trading, the 6% seven-year note was unchanged, at 99 16/32-99 20/32, to yield 6.06%.
Rates on Treasury bills were higher, with the three-month bill up two basis points at 2.85%, the six-month bill up five basis points at 3.02%, and the year bill four basis points higher at 3. 1 0%.
Treasury Market Yields
Tuesday Week Month
3-Month Bill 2.88 2.77 2.97
6-Month Bill 3.08 2.91 3.00
1-Year Bill 3.19 3.02 3.15
2-Year Note 3.98 3.71 3.84
3-Year Note 4.43 4.16 4.35
5-Year Note 5.49 5.23 5.34
7-Year Note 6.06 5.83 5.86
10-Year Note 6.50 6.27 6.37
30-year Bond 7.53 7.40 7.31
Source: Cantor, Fitzgerald/Telerate