Coupon Passes Lift Treasuries

Otherwise, with no economic data or auctions till tomorrow it's a time-biding kind of day.
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Treasuries are somewhat higher in price, lower in yield this morning thanks mainly to purchases by the

Fed

. On

Friday, the benchmark 30-year bond's yield rose to its highest level in almost a year.

The Fed executed two coupon passes this morning, buying securities on the open market in order to inject enough liquidity into the banking system to keep the fed funds rate on target. The Fed bought $303 million of Treasury Inflation-Protected Securities, or TIPS, shortly after 10 a.m. EDT, and started buying intermediate-dated regular Treasuries shortly after 11 a.m. EDT. The long bond was lately up 7/32 at 92 6/32, dropping its yield 2 basis points to 5.80%.

Otherwise, it's very much a time-biding kind of day. There are no economic indicators on the calendar today, but several biggies are due out later this week. And the quarterly refunding starts tomorrow with an auction of $15 billion of new 5-year Treasury notes. The refunding concludes Wednesday with an auction of $12 billion of new 10-year notes.

Because this quarterly refunding doesn't also include an auction of new 30-year bonds, the long bond is outperforming its intermediate-term counterparts. The 10- and 5-year notes were lately up just 1/32.

Traders are hopeful, however, that after the refunding, there will be a more broad-based rally in Treasuries. Yields rose on Friday despite a friendlier-than-expected April

employment report

.

"I also think we got oversold," said David Connors, managing director at

Credit Suisse First Boston

. "The information on Friday was benign, given expectations, and the market wasn't able to do anything with it."

Fear of inflation is running high, Connors said, "but we haven't had the information to back up the fears," and aren't likely to get it from either the

Producer Price Index

or the

Consumer Price Index

, due out Thursday and Friday. The recent rebound in oil prices will inflate the headline numbers, but the core PPI and CPI should remain tame, he said.

"I think the market could recover subsequent to the refunding," particularly if the 10-year note is offering a yield over 5.50%,

Merrill Lynch

government securities strategist John Spinello concurred. At that level, which investors think is cheap, "I think the sellers will be finished for a while," he said.