After an early dip, the Treasury market spent most of yesterday treading water, waiting for today's release of the August employment report.

Norrag that activity has been "pretty light," Robert Doherty, a government bond trader at Kidder, Peabody & Co., said people are getting set up on the yield curve for the employment number.

"The curve has been surprisingly steep since the Federal Reserve tightening," Doherty said. "People are cleaning up their positions today. Most people are thinking the curve should flatten out over the course of time."

Yesterday's market dip, a reaction to yesterday's National Association of Purchasing Management report, was muted compared to previous months. While the 30-year bond dropped almost 3/8 of a point in early trading yesterday, prices on the benchmark bond have fallen by half a point on average this year after release of the NAPM monthly index, economists said.

But until something happens that really shakes up the market -- and that may not be today' s employment report -- bonds are likely to stay right where they are.

The consensus forecast is for an increase in U.S. nonfarm jobs of 225,000, with some economists expecting the increase in jobs to go as high as 290,000. Others see an increase of only 200,000. The increase in nonfarm payroll employment for July was reported at 259,000.

Economists call for little change in the unemployment rate, predicting that it will range from 6.0% to 6.2%. The unemployment rate was reported at 6.1% in July

Next week, the producer price index, auto sales, and consumer credit are key indicators that will welcome the market into post-Labor Day activity.

Doherty said that next week, he is looking for inflation to remain under control and the economy "to continue at expanding pace without overhearing."

But for now, the market is locked in a tight trading range. According to a Smith Barney Inc. report, during August the closing yield on the 30-year bond was within 10 basis points of 7.50% on 18 of the 23 trading days.

"The truth is the markets have not moved all that dramatically. It's more quiet than anticipated given the tenor of the economic news," Samuel Kahun, chief economist at Fuji Securities, said yesterday.

Kahan attributed the market calm partly to the growing expectation that the U.S. economy is going to slow down. "There's a growing discounting of anything that doesn't fit into that picture," he said. "The thing about these markets is that they can change on a dime."

Yesterday, some morning selling followed inflationary news in the price component of the purchasing managers index

The long bond fell as much as 3/8 of a point after the August price index came in at 74.5%, compared to 73.1% for July,.

The August price number is the index's highest level since August 1988, and suggests that price pressures are accumulating.

The purchasing managers' overall index for August fell, however, to 56.2% from 57.8% in July. New orders and production continued to grow, but at a slower rate than the previous month.

So with little surprising news, the market drifted higher during the afternoon. In late New York trading, the benchmark 30-year bond was unchanged from Wednesday's close to yield 7.44%.

The 10-year note was also unchanged to yield 7.16%. The sevenyear was up 1/32 to yield 6.97% and the five-year was unchanged to yield 6.77%.

The short end finished strongly. The yield on the three-month bill was down one basis point to 4.64%. The yield on the six-month bill was down five basis points to 4.97% and the yield on the one-year was down one basis point at 5.50%.

The September Treasury bond futures contract closed down 1/8 to 103 19/32. up from the day's low of 103 10/32.

Other components in the purchasing managers' index gave conflicting signals about where the economy is headed. The August employment index dropped to 49.4% from 51.8% in July, but the supplier delivery index rose to 61.1% from 57.3%.

The purchasers reported that the manufacturing. sector in August showed its 12th consecutive month of growth, but at a reduced rate compared to July 1994. "The overall economy also continued to grow strongly," the report said, "but at a lower rate than in the past eight months."

Another indicator yesterday, U.S. construction spending in July, was up 0.6% as expected, while the June figure was revised to up 0.3% from up 0.2%. The July number, up 10.2% from a year ago, got its boost from public construction.

The construction indicator showed continued strength, Kahan said. "In theory, the bond market doesn't like strength, but it really hasn't been reacting. Eight ticks is nothing dramatic," he said.

The market kicked off selling early yesterday when the Labor Department reported initial state unemployment claims statistics. New state jobless claims were up 9,000 to 332,000 in the week ended Aug. 27.

The dollar showed weakness after the purchasers' inflationary news was released midmorning, with the dollar bidding down to 99.57 Japanese yen compared to 100.18 at market close yesterday and 1.5740 German marks compared to 1.5812.

Losses in the dollar were limited, however, as market players waited on the sidelines for today's employment report. In late trading, the dollar was quoted at 99.60 yen and 1.5745 marks.

Some markets will close early today ahead of the Labor Day holiday. Yesterday, the Public Securities Association recommended that U.S. debt markets close at 2p.m.

In the corporate market, spreads on investment-grade bonds were unchanged. Prices on below investmentgrade bonds were mixed in somnambulant trading.

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