Treasury prices ended narrowly mixed after another listless session spent waiting for today's May jobs statistics.
Late in the afternoon, the 30-year bond was off 1/16 point to yield 7.87%, while bill and short-term note prices were slightly higher.
"It was a big nothing day," the head of a government trading desk said. "Everyone was waiting for the employment report."
Short-term Treasury prices got a small boost late in the day when all three measures of the money stock posted large declines.
A spokesman for the Federal Reserve Bank of New York said at the bank's weekly press briefing that the nation's M1 money supply fell $3 billion to $950.9 billion in the week ended May 25, while the broader M2 aggregate dropped $10.7 billion, to $3.5 trillion; and M3 declined $6.7 billion, to $4.2 trillion, in the same period.
The weekly money supply numbers have received a lot of attention since April, when the Fed said it had eased monetary policy in response to the weakness in money supply growth. But in recent weeks, some Fed officials have suggested the relationship between the money numbers and economic growth may be breaking down.
Steven Wood, director of financial markets research at Bank of America, said even though the officials' comments indicate policy-makers are paying less attention to money, yesterday's declines were notable because they put the money supply well below the bottom of the Fed's target ranges for growth.
The weakness in the monetary aggregates "will clearly increase the political pressure on the Fed," Mr. Wood said. "If money supply is this weak and we don't get any sort of strength in nonfarm payrolls [today], it will revive talk of another Fed easing."
Economists surveyed by The Bond Buyer on average expect a 95,000 gain in May nonfarm payrolls. Most of the economists predicted unemployment would remain unchanged at 7.2%.
Traders said an increase of 75,000 to 100,000 in payrolls was already accounted for in current prices.
A note trader said an increase of about 125,000 would only depress prices temporarily, while a bigger gain could do considerable damage. The key is whether the report persuades retail investors that the economy is growing so quickly they ought to sell securities, the trader said.
Many traders think a stronger-than-expected employment report would do the most damage at the short end, where some investors are still holding onto securities in hopes of getting another Fed easing.
The market ignored the rest of yesterday's economic news, including jobless claims and chain stores' reports of May sales.
The Labor Department said new filings for unemployment insurance rose 4,000, to 407,000 in the week ended May 23. The gain matched the market's expectations.
Kevin Flanagan, an economist at Dean Witter Reynolds Inc., said new filings have been hovering just above 400,000 for weeks, suggesting "the improvement we've been seeing in the nation's labor force is stalling out to a degree."
But any positive impact the increase in claims might have had on the market was offset by the decline in the number of people receiving benefits, he said.
The total number on state benefit rolls dropped 57,000 to 3.293 million in the week ended May 16, which is the lowest level since March.
Mr. Flanagan said the mixed message sent by the claims report was typical of the economic data the market has been getting. He predicted such conflicting statistics would keep Treasury prices in a narrow range for the rest of this month.
May chain store sales were up 2.6% from April's level on a seasonally adjusted basis, according to calculations by Michael Niemira, a business economist at Mitsubishi.
Mr. Niemira said the increase was encouraging, especially because it followed two months of declines. The chain store sales figures support his forecast for a 0.7% increase in May retail sales excluding autos, he said.
The September bond futures contract closed 1/32 higher at 99/32.
In the cash market, the 30-year 8% bond was 1/16 lower, at 101 10/32-101 14/32, to yield 7.87%.
The 7 1/2% 10-year note fell 1/32, to 101-101 4/32, to yield 7.33%.
The three-year 5 7/8% note was up 1/16, at 100 13/32-100 15/32, to yield 5.69%.
Rates on Treasury bills were lower, with the three-month bill down basis points at 3.69%, the six-month off three basis points at 3.83%, and the year bill two basis points lower at 4.06%.
In other news, the New York Fed said the federal funds are rate averaged 3.85% for the week ended Wednesday, up from 3.80% the previous week, according to the New York Fed.