Like clockwork, the prices of Treasury securities deteriorated into the 1 p.m. EDT bidding deadline for the

Treasury Department's

new five-year notes -- enabling dealers to pick them up at relatively low prices -- and then rebounded to end up modestly.

It frequently happens this way. The Treasury Department announces an auction of new securities, specifying a date, time and quantity. And then bond dealers, by selling in the hours leading up to the auction, manage to push the market lower, so that they can pick up the new issues -- on which many of them are required to bid -- on the cheap.

Today's auction of $12 billion of new five-year notes was the first leg of the so-called quarterly refunding, in which the Treasury Department issues new long-dated notes, and sometimes also issues new 30-year bonds. The second-quarter refunding, which doesn't include a bond auction, will conclude tomorrow with an auction of $8 billion of 10-year notes.

Dealers bought the five-year notes at a yield of 6.789%, and the bid-to-cover ratio, which measures demand for the notes by comparing the amount of securities bid for to the amount offered for sale, was 1.98, the strongest since June 1998.

That news, announced at around 1:30 p.m., helped Treasuries rally into the close. There were no major economic releases today and no other market-moving events. Volume, according to tracker

GovPX

, was 12% below the average for a Tuesday over the past month at $29.8 billion by 3 p.m.

The benchmark 10-year Treasury note ended up 9/32 at 99 25/32, trimming its yield 3.9 basis points to 6.529%. Shorter-maturity yields shed similar amounts. The 30-year bond gained 14/32 to 100 16/32, dropping its yield 3.1 basis points to 6.214%.

At the

Chicago Board of Trade

, the TK

Treasury futures contract gained 18/32 to 93 14/32.

"It was a typical auction day," said David Ging, Treasury market strategist at

Donaldson Lufkin & Jenrette

. "We were up early -- short-covering, probably -- and then cheapened up into the auction." The late-day rally, Ging noted, failed to lift prices over their morning highs, which isn't surprising with another auction slated for tomorrow.

Meanwhile, market analysts continue to look for a more substantial break in the bearish action that has lifted short- and intermediate-term Treasury yields by about 75 basis points over the last month.

The action has been driven by stronger-than-expected economic data, which suggests that the

Fed will have to hike the

fed funds rate, now 6%, to at least 7% by the end of the year.

But at least in the short-term, the selling may have gone too far. "The longer-term trend is still negative, but you do get the sense that the market's trying to make a short-term low," said Walter Burke, chief technical analyst at

MCM Moneywatch

. The June bond contract has tested the 93 level a handful of times over the last two days, a level that corresponds to a yield of about 6.25% on the 30-year bond, he noted. "With the market being as oversold as it is, strength above 94 should be enough to turn it positive for the next several days," Burke said. But he predicts that the contract will run into trouble at the 96 level, corresponding to a yield on the 30-year of about 6%.

In the longer term, the Treasury market's fate rests on the outcome of the

Federal Open Market Committee meeting a week from today. Forecasters are in broad agreement that the committee will hike the fed funds rate to 6.50%. More interesting will be what the committee has to say in its announcement about its likely future course.

Economic Indicators

The weekly retail sales reports were mixed. The

BTM Weekly U.S. Retail Chain Store Sales Index rose 0.8%, lifting the year-on-year pace to 1.2% from 0.7%. But the

Redbook Retail Average for the first week of May lagged April by 0.1%, and the year-on-year pace fell to 4.4% from 7.1%. Redbook attributed the weakness to the lateness of Mothers' Day this year compared to last year.

Currency and Commodities

The dollar rose against the yen and fell against the euro. It lately was worth

109.14 yen, up from

108.99. The euro was worth $0.9074, up from $0.8973. For more on currencies, please take a look at

TSC's

Currencies column.

Crude oil for June delivery at the

New York Mercantile Exchange

hit a two-month high of $28.65 a barrel, up from $28.09.

The

Bridge Commodity Research Bureau Index

rose to 217.13 from 215.72.

Gold for June delivery at the

Comex

rose to $278.20 an ounce from $277.60.