Treasury prices perked up yesterday as the market breathed a sigh of relief at having made it through this week's note auctions.
Traders said some recent statistics depicting slower economic growth, including yeaterday's bigger-than-expected increase in jobless claims, were also bolstering bond prices.
Late yesterday, the 30-year bond was up 3/8 point to yield 6.73% and note prices were up 1/8 to 1/4 point.
Treasury prices began to improve in overseas trading. then headed higher after the jobless claims statistics were released early in the New York session.
The 8,000 rise in new claims for state unemployment benefits was a little bigger than economists expected, but hardly signaled a major deterioration in the labor market.
But traders said prices had been poised to rally. "The market didn't need that much of a push to do better," a government note trader said.
With this week's two-year and five-year note auctions out of the way and the new securities largely distributed, the technicals are working in the market's favor again.
The Treasury will not sell coupons again until the end of next month. Traders say that in contrast to that lack of supply, they expect to see demand from various quarters, including municipal issuers who need them for defeasance deals and portfolio managers preparing their balance sheets for quarter's end.
Traders also said that since the government has abolished the seven-year note auction usually held in early July, the owners of the $6.6 billion of seven-years maturing in mid-July will be looking for places to reinvest their money. The recipients of the $4.6 billion of government interest being paid on June 30 are another source of demand.
The market's view of the economy has been brightening along with the supply outlook.
The 8,000 increase in claims for state unemployment benefits put the total number of claims at 353,000, in the week ended June 19. The market had expected an increase of only 1,000.
Marilyn Schaja, an economist at Donaldson, Lufkin & Jenrette, said the increase put claims above 350,000 for the first time since mid-April.
The report "suggests the improvement we've seen in the labor market is stalling." Schaja said.
Schaja said that the claims number echoes other recent statistics that suggest the economy is growing slowly, like Wednesday's 1.6% decline in May durable goods orders.
The claims report is also evidence that a tightening in Federal Reserve monetary policy is not imminent, said Anthony Chan, a senior economist at Barclays de Zoete Wedd Securities.
The bond market ignored the May personal income and consumption numbers, which came in close to expectations.
The Commerce Department said that May personal income rose 0.6%, while last month's spending increased 0.2%. April's numbers were revised higher and now show a 0.6% rise in income, which was originally shown as flat, and a 1.2% jump in spending, up from the 1% reported last month.
Paul Lally, an economist at R.H. Wrightson & Associates, said a 1.2% rise in May wages and salaries had been offset by a bigger-than-expected decline in farm income.
Lally said that even though consumer spending was weak in May, growth in spending for the second quarter is still running at a 2.5% annual rate. "That's substantially faster than the first quarter and means real [spending] will be a much larger contributor to second-quarter growth," he said.
The Treasury finished this week's series of auctions by selling $15.25 billion of year bills yesterday. The bills were auctioned at an average rate of 3.40%.
A bill trader said the auction went smoothly, but that abundant corporate and agency supply in the one-year area was putting pressure on the bill sector.
Corporate issuance totaled more than $3 billion yesterday.
Also yesterday, the Federal Reserve Bank of New York said the nation's M1 money supply fell $2.1 billion to $1.1 trillion in the week ended June 14; the broader M2 aggregate declined $2.3 billion, to $3.5 trillion, and M3 decreased $2.5 billion, to $4.2 trillion.
The September bond futures contract closed 13/12 higher at 113.
In the cash market, the 7 1/8% 30-year bond was 11/32 higher, at 104 31/32-105 1/32, to yield 6.73%.
The 6 1/4% 10-year note rose 7/32, to 102 27/32-102 29/32, to yield 5.85%.
The three-year 4 1/4% note was up 1/8, at 99 15/32-99 17/32, to yield 4.42%.
In when-issued trading, the 4 1/8% two-year note was 3/32 higher, at 99 30/32-99 31/32, to yield 4.14%, and the 5 1/8% five-year note was up 5/32, at 99 26/32-99 28/32, to yield 5.16%.
Rates on Treasury bills moved lower, with the three-month bill down two basis points at 3.11%, the six-month bill off three basis points at 3.20%, and the year bill two basis points lower at 3.38%.
In other news, the New York Fed reported the federal funds rate averaged 3% for the week ended Wednesday, down from 3.01% the previous week.Treasury Market Yields Prev. Prev. Thursday Week Month3-Month Bill 3.15 3.08 3.106-Month Bill 3.27 3.22 3.301-Year Bill 3.49 3.42 3.532-Year Note 4.14 4.05 4.243-Year Note 4.43 4.41 4.595-Year Note 5.16 5.14 5.357-Year Note 5.50 5.53 5.7410-Year Note 5.85 5.91 6.0930-Year Bond 6.73 6.80 6.92 Source: Cantor, Fitzgerald/Telerate