Bonds Gain in Penultimate 1998 Session

Buying was seen across the curve but was most intensive in the short end.
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Even on one of the thinnest days of the year, the bond market was still able to end the day in positive territory.

Lately the 30-year benchmark Treasury was up 6/32 to trade at 102 15/32, with the yield declining to 5.09%.

Expectations as reported by


After the overnight selloff abated, not much happened in the Treasury market. Economic data was spare and the activity was light, with


volume down 49% as of 3 p.m. EST when compared to the fourth quarter 1997. The bond market derived some buying interest from the overall weak day in the equity market, but most of the decline in the major indices took place after the futures closed at 3 p.m.

Buying was witnessed across the curve, but was best in the short end, more specifically the two-year and five-year notes. Even though extra-aggressive traders paid too much in

yesterday's two-year note auction, the securities were viewed as cheap anyhow, tightening by 9 basis points from 4.63% to 4.54%. The five-year and 10-year maturities are also below 4.75% sea level -- at 4.52% and 4.64%, respectively.

By contrast, the 30-year bond stayed near even all day, and the yield only fell by two basis points. (It takes a greater price movement to affect the yield with longer-dated securities). Supposedly, Russia's default on a $360 million Soviet-era interest payment added support to Treasuries (the old safe-haven argument), but that kind of activity usually disappears from the market this late in the year.

This morning's activity was affected by more selling pressure out of Japan. The Japanese 10-year benchmark sold off to yield 2.01%, and that in turn caused Treasuries to widen. Traders in Japan are anticipating 1999's first government bond auction next Thursday, kicking off what should be a record year for JGB issuance.

"The source of supply pressure isn't going away anytime soon," said Frederick Sturm, chief economist at

Fuji Securities



Treasury Department

announced a sale of $8 billion in 10-year Treasury inflation-linked securities, or TIPS, to be sold next Wednesday.


Conference Board's

index of

leading economic indicators

rose 0.6% to 106.3 following a 0.1% increase in October. The increase in stock prices and money supply were the greatest contributors to this rise, along with consumer expectations. Impacting most negatively was the November rise in initial jobless claims.


Labor Department

releases last week's figures for

jobless claims

tomorrow morning. The forecast is for 312,000 in claims, but economists have consistently overestimated this figure. Tomorrow the

Chicago purchasing managers' index

for December is released. The forecast is for 50.2, same as the November figure.

Expectations as reported by