30-Year Races Higher on Buyback Chatter

But shorter-maturity issues ended lower the day before the February jobs report.
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The Treasury market split again today, this time with the benchmark 10-year issue and shorter maturities losing ground, while the 30-year bond rallied. There was no clear fundamental driving force; rather, the market reacted to stock prices, the pricing of a large corporate bond deal and rumors relating to the government's Treasury buyback program.

For much of the morning the market waded in negative territory. Then it caught a bid that analysts credited to falling stock prices, which are seen as the key to an economic slowdown that will allow bonds to rally again. And to a rumor that the

Treasury Department's

weekly announcement of the size of its next bill auctions, at 2:30 p.m. EST, would include details about the buyback program.

The buyback program is one of the ways in which the Treasury Department is dealing with the fact that because the federal government is running a surplus, it no longer needs to issue as many notes and bonds. Rather than only cutting back on new issuance, a measure that impairs market liquidity, it also plans to buy some old securities, which have less liquidity than new ones, back from investors.

So far, the department has said only that it will buy back up to $30 billion of old Treasuries this year, that it will focus on long-maturity issues, that the initial buybacks will be about $1 billion in size and that the program will start by the quickly approaching end of March.

The suspense is heightened,

Zions First National Bank

trader Mike Franzese said, by the assumption that the buybacks will start before March 21, when the

Federal Open Market Committee

next meets, and is widely expected to hike the

fed funds rate

. They will be less disruptive to the markets in general before a rate hike than after, he said.

In any case, no buyback details were included in the announcement, and the bond gave back a portion of its gains.

Also contributing to the action was

Raytheon's

(RTN.A)

pricing of $2.25 billion of two-, three-, six- and 10-year notes. There was demand for Treasuries from participants who had sold them as part of a hedging strategy for the deal, said Roseanne Briggen, market strategist at

MCM Moneywatch

. The Treasury market peaked right around the same time the Raytheon deal priced, at 2 p.m.

Today's economic reports were more or less in line with expectations and had little if any market impact.

New home sales

fell 4.2% in January, to a seasonally adjusted annual pace of 882,000, narrowly missing the

Reuters

consensus forecast of 889,000. That's down from a November 1998 peak of 995,000, coinciding with the lows in long-term interest rates. But it's up from September's pace of 848,000. In short, new home sales continue to run at too fast a pace to hold out much hope that consumer spending more broadly is slowing enough to satisfy the

Fed

.

The

employment report

, the most important economic release to roll around each month, is slated for release tomorrow morning.

The benchmark 10-year Treasury ended down 3/32 at 100 24/32, lifting its yield 1.2 basis points to 6.431%. The erstwhile benchmark, the 30-year bond, ended up 9/32 at 101 16/32, dropping its yield 2.1 basis points to 6.139%.

At the

Chicago Board of Trade

, the June

Treasury futures contract finished 10/32 higher at 94 26/32.

Economic Indicators

Also today, the weekly

initial jobless claims

report showed a slight increase in the number of people applying for unemployment insurance benefits, to 275,000 from 269,000. Still, these are very low numbers, indicating a very tight labor market. Five weeks ago, the count hit a 26-year low of 266,000.

And the

leading economic indicators

index rose 0.3% for the third month in a row, powered by building permits, consumer expectations, and the money supply.

Currency and Commodities

The dollar regained a bit of the ground it lost yesterday against the yen and the euro. It was lately worth 107.73 yen, up from 107.15 yesterday. The euro was lately worth $0.9643, down from $0.9734 yesterday. For more on currencies, please take a look at

TSC's

new

Currency Watch column.

Crude oil for April delivery at the

New York Mercantile Exchange

surrendered a bit of yesterday's big gain, dropping to $31.53 a barrel from $31.77 yesterday.

The

Bridge Commodity Research Bureau Index

fell to 212.12 from 212.13 yesterday.

Gold for April delivery at the

Comex

fell to $289.7 an ounce, down from $293.3 yesterday.