Index Buyers Lift Long Bond

Except for the 30-year bond -- which had the calendar to thank -- there was little interest in Treasuries today, even though the day's economic numbers fell on the soft side of expectations.

With bigger fish to fry tomorrow and Friday in the form of February's Purchasing Managers' Index and the employment report, Treasuries mostly idled. The benchmark 10-year note ended unchanged at 100 19/32, its yield 6.418%. Shorter-maturity issues fell, with the five-year note, this year's sorriest excuse for an investment, once again putting on the worst show.

But the 30-year Treasury bond gained 19/32 to 101 13/32, dropping its yield 4.3 basis points to 6.146%. More than half of the gain came during the last 45 minutes of the session, and it was no surprise.

Of course, lately, it's almost never a surprise to see the long bond ramping. Ever since the government announced plans to curtail the supply of the issue last month, it does it all the time.

But the rally was particularly routine today. On the last day of each month, the various indices that track the bond market get reconfigured. Newly issued securities get added in, and the shortest-maturity issues fall out. The effect is especially pronounced in the four months in which the Treasury Department issues new long-maturity notes and bonds -- February, May, August and November.

At the end of the last day of those months, a whole bunch of new long-dated securities get added to bond indices. That prompts buying of the securities by portfolio managers who try to mimic the performance of the indices. Hence the run-up in the long bond's price in the final minutes of the trading day.

On the economic front, there was mildly supportive news. The Chicago Purchasing Managers' Index and the Consumer Confidence Index, both for February, were both weaker than expected. The Chicago PMI rose to 56.7 from 55.6 in January. Economists polled by Reuters had forecast a rise to 57.5, on average.

A sub-index of the Chicago report that measures prices paid by Midwest manufacturers was likewise friendly. It rose just a tad, to 68.9 from 67.8.

The Consumer Confidence Index, for its part, fell to 141.8, from January's record high of 144.7. A smaller decline, to 143.0, had been forecast. The decline offered a bit of hope that consumer confidence, which drives consumer spending, which drives the economy, still depends more on the Dow Jones Industrial Average, which has been struggling, than on the Nasdaq Composite Index, which has not.

Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., said in a research note today that the Fed "dearly hopes that the Dow is more important. If it is not, then confidence will remain robust and consumer will continue to drive the economy forward at an unsustainably fast pace."

Otherwise, today's activity mostly revolved around the shifting differences between short- and long-term Treasury yields, rather than the market's general direction, said Michael Pianin, a trader at Fuji Securities.

"It's all curves here, he said. And it's tricky. "You never know when this bond bid is going to reappear. Or disappear, for that matter."

Also of interest to traders today was a heavy slate of bond issuance outside the Treasury arena. The biggest of the deals was $2 billion of two-year notes from the World Bank, which helped keep pressure on short-maturity Treasuries, Pianin said.

At the Chicago Board of Trade, the June Treasury futures contract finished up 20/32 at 94 22/32.

Economic Indicators

Also today, the BTM/Schroder Weekly Chain Store Sales Index rose 0.2%, but the year-on-year pace fell from 3.6% to 2.6%, the lowest since December 1997. The Redbook Retail Average rose 0.8% during the first three weeks of February, compared to January.

Currency and Commodities

The dollar gained against the yen and the euro. It lately was worth 110.13 yen, up from 109.50 yesterday. The euro was worth $0.9653, down from $0.9717 yesterday.

Crude oil for April delivery at the New York Mercantile Exchange rose to $30.45 a barrel up from $30.13 yesterday.

The Bridge Commodity Research Bureau Index rose to 208.74 from 207.24 yesterday.

Gold for April delivery at the Comex fell to $294.1 an ounce from $294.2 yesterday.