Treasury prices ended narrowly mixed yesterday after another subdued trading session spent waiting for Friday's employment statistics.
Late in the afternoon, the 30-year bond was 1/8 point lower and yielded 7.37%, while short-term and intermediate securities were slightly higher on the day.
"There's basically not a whole lot going on," said Steven Slifer, a money market economist at Lehman Brothers. "We're moving back and forth in a relatively narrow band in thin volume."
"No one is willing to make a bet until they see what we get on Friday," Mr. Slifer added. "That's been the situation since Monday."
Mr. Slifer expects a 180,000 decline in September nonfarm payrolls, with 175,000 of that loss reflecting the end of a federally funded summer jobs program for teenagers.
That kind of report should allow the Federal Reserve to ease monetary policy, in line with market expectations. But the weakness in the dollar probably means the Fed will only lower the funds rate by 25 basis points, to 2 3/4%, instead of 50 basis points, he said.
The consensus forecast calls for a 115,000 decline in September, payrolls, a 35,000 increase in September jobs when the departing teenage summer workers are excluded, and an increase in the unemployment rate to 7.8% from the 7.6% August reading.
The biggest move in the market yesterday occurred in mid-morning, when prices dipped after the Purchasing Management Association of Chicago said its index of local business activity rose to 59.6% this month on an adjusted basis, up from 58.4% in August.
The slight increase was a surprise because economists had expected a small decline, but traders said the jump in the employment component was the most disturbing feature of the report. Employment rose to 56.6% in September. from 45.7% in August.
"That number got people spooked a little bit," Mr. Slifer said.
Peter Greenbaum, an economist at Smith Barney, said that employment reading was a recent high for the Chicago survey, beating the 52.8% level it posted in April before falling back into the mid-40s in the ensuing months.
Mr. Greenbaum said the Chicago employment measure did not correlate that well with national payroll figures, although it might suggest direction.
Yesterday's other indicator, August new home sales, showed a 6.1%, to a 570,000 annual rate.
The bond market had expected a 2.8% increase, so the fall looked favorable on the surface, but it was largely offset by a big upward revision to July sales, which now show a 4.5% gain instead of the 2.6% decrease reported last month.
Mr. Greenbaum said that even though home sales were still below this year's peak of 667,000, which occurred in January, they have stabilized during the third quarter thanks to the Fed's rate cuts. And he noted that the unsold inventories were at a relatively lean 5.8 months, suggesting that "whenever you get some pick-up in demand, it should feed through immediately."
Traders said foreign central bank buying and purchases to defease municipal bond refinancings helped intermediate prices yesterday, while retail accounts bought bills to dress up their balance sheets for the end of the fiscal quarter.
A bill trader said he had seen "very, very active buyers."
"Customers want to have their balance sheets look sharp with short-term Treasuries" for quarter's end, and that demand offset a tendency on the part of dealers to dump inventories because of high financing costs, the trader said. He added the most of the buying he saw was for same-day settlement.
The combination of quarter end and the end of a Fed maintenance period caused federal funds to trade as high as 5% yesterday and also put upwards pressure on repurchase rates, traders said.
Yesterday afternoon, the Treasury said it will sell $9.75 billion of seven-years next Wednesday, instead of the $10 billion analysts had predicted. The when-issued notes were quoted at 5.93% in late trading.
Traders expect equally listless activity today unless the morning indicators contain some surprise.
Economists are expecting a dull set of numbers. The consensus forecast calls for a 53.5% reading on the September national purchasing manager's index, almost unchanged from the 53.7% reading in August; 413,000 new claims for unemployment insurance, little changed from the 414,000 total the previous week; and a 0.3% decline in August construction spending.
The December bond futures contract closed 6/32 lower at 105 10/32.
In the cash market, the 7 1/4% 30-year bond was 5/32 lower, at 98 12/32-98 16/32, to yield 7.375%
The 6 3/8% 10-year note rose 3/32, to 100 2/32-100 6/32, to yield 6.34%.
The three-year 4 5/8% note was up 2/32, at 100 30/32-101, to yield 4.25%.
Rates on Treasury bills were mixed, with the three-month bill down five basis points at 2.69%, the six-month bill off three basis points at 2.84%, and the year bill steady at 2.96%.
Treasury Market Yields
Wednesday Week Month
3-Month Bill 2.72 2.97 3.19
6-Month Bill 2.90 3.04 3.29
1-Year Bill 3.04 3.19 3.40
2-Year Note 3.78 3.96 4.08
3-Year Note 4.25 4.46 4.55
5-Year Note 5.32 5.53 5.48
7-Year Note 5.88 6.08 6.01
10-Year Note 6.34 6.54 6.51
30-Year Bond 7.37 7.48 7.36
Source: Cantor, Fitzgerald/Telerate