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Favorable Refunding News Helps Treasuries

Strength in dollar/yen is also aiding the market.

Bonds are mixed this morning, as yet another selloff in Japan took some life out of U.S. Treasuries, but the refunding announcement propped up some maturities.

Lately the 30-year Treasury bond was up 7/32 to trade at 100 9/32, as the yield eased to 5.23%. The yield on the Japanese 10-year benchmark, or JGB, rose to 2.35%, the highest yield since July 1997. However, Japanese debt futures rose during the overnight session, indicating the recent selloff may take a breather. Dollar/yen also rose, up 0.40 lately to 112.30.

"The difference between today and yesterday in terms of Japan is that dollar/yen is stronger," said Tony Crescenzi, chief bond market strategist at

Miller Tabak Hirsch

. "That's the overriding factor, and it might limit the extent of repatriation of Japanese assets."

Details of the first-quarter Treasury refunding also held down the intermediate maturities in the market. The Treasury will sell $15 billion of five-year notes, $10 billion of 10-year notes and $10 billion of 30-year bonds next week. This morning the "when-issued" bonds -- that is, the bonds to be sold next week -- began to trade in the futures pits.

Gary Gensler

, assistant Treasury secretary for financial markets, said the Treasury is considering reducing the frequency of two-year note sales and 30-year bond sales. The two-year note was up 1/32 lately to yield 4.70%.

"We've seen a barbell improvement; the bond and the two-year are outperforming the midsection," said Crescenzi.

In addition, the Treasury will reopen, or resell, the 9.75% 10-year Treasury bond sold in November, which would provide more liquidity to the market. Both the 10-year and 30-year issues were reopened last August to enhance liquidity.

This news is most beneficial to traders, foreign buyers, and those who commonly hedge Treasury securities or borrow bonds in the repurchasing market. Repo rates -- the interest rate a cash lender receives in order to borrow bonds -- has shrunk to less than 1%. Repo rates generally trade at a rate only slightly lower than the federal funds lending rate.

Economists surmised that the Treasury would reopen an issue at the November 1998 auction, but the high prices in the bond at the time convinced many that it would be cost-prohibitive.

Bonds have been under pressure lately on the chance that the

Federal Reserve

will move to a tightening bias at today's conclusion of the

Federal Open Market Committee

meeting. Since that information will not be divulged today (unless it is leaked) it's a tertiary factor in today's session.

Expectations as reported by