Ford in Charge

The largest-ever corporate bond deal made the Treasury market (which ended little changed) its plaything.
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After trading up as much as half a point and down as much as half a point, driven by little more than flows related to the pricing of the largest-ever corporate bond issue, the benchmark 30-year Treasury bond ended the day very little changed.

With

Ford's

(F) - Get Report

mammoth $8.6 billion transaction out of the way, the focus shifts to key economic data slated for release next week, and what

Fed

Chairman

Alan Greenspan

will say about them in his semiannual

Humphrey-Hawkins

congressional testimony on July 22.

No economic data were released today, and no major reports are due out before Wednesday brings the

Producer Price Index

and

retail sales

report for July.

Still, the week ended on a wild note as Ford sold $1.8 billion 32-year, $4 billion five-year, $1.8 billion three-year floating-rate, and $1 billion two-year floating rate securities between noon and 1 p.m. EDT.

The deal, which dethroned

AT&T

(T) - Get Report

as the issuer of the single largest corporate bond deal, whipped the Treasury market back and forth over the course of the day. "It dominated all the flows in the Treasury market," said Roseanne Briggen, Treasury market strategist at

MCM Moneywatch

.

Over the last few sessions, many traders sold Treasuries short, anticipating that the deal would weigh on them. Sure enough, the market weakened. Then, yesterday, Briggen said, "When word got out that

the Ford deal was very, very, very oversubscribed, people started taking back profitable shorts." They wanted to take their profits before the market shook off the effects of the Ford deal. The long bond peaked for the day at about 9:40 a.m. EDT, up 15/32.

An investor who sold a large block of off-the-run Treasuries, presumably to make room in his portfolio for some Ford paper, helped drag the market to its low of the day at about 12:20 p.m., Briggen said.

It recovered thanks to a buyer of $1 billion five-year Treasuries, presumably a Ford underwriter covering a short hedge, Briggen said. "But the gains eroded on lack of liquidity and some profit-taking by day traders getting out," he said.

The long bond ended the day down 5/32 at 89 18/32, lifting its yield a basis point to 6.01%. The shorter-maturity sectors, where the Ford deal was concentrated, underperformed slightly.

Treasury market participants are fully prepared for the corporate calendar to continue to intrude on their lives. "Corporate supply remains the big story, with a lot more expected to come down the road,"

Credit Suisse First Boston

senior economist Mike Cloherty said. "Basically you've got everyone rushing to get deals in before people start to lighten up positions before year end," when Y2K is expected to make investors far less willing to take new positions in risky securities.

But fundamental concerns are set to move back to center stage next week. The fun starts on Wednesday, and continues on Thursday with the release of the July

Consumer Price Index

, which with the PPI describes the inflation situation.

Friendly readings are expected from both indicators. The PPI is forecast by economists surveyed by

Reuters

to rise 0.1% overall and 0.1% at its core, which excludes food and energy. The CPI is forecast to rise 0.2% overall and 0.2% at its core. "Friendlier data make it somewhat more difficult for

Greenspan to justify significant tightening," Cloherty said. Market participants expect Greenspan to discuss the likelihood that the Fed will raise interest rates for a second time at its next meeting on Aug. 24. But, Cloherty says, the fact that Greenspan is scheduled to speak "limits the degree of rallies" that can take place if the inflation data are better than expected.

And if the data are worse than expected, as the April CPI was? "Inflation fears would come roaring back in," Cloherty said.

"I think the market's a little bit on tenterhooks," Gib Clark, a trader at

Zions First National Bank

in Jersey City, N.J., concurred. "We don't see that much buying going on even at lower levels to think it's basing out." As for the economic numbers, he continued: "Nothing's pointing toward any slowdown. They're still pointing toward a real strong economy. And the stock market's still roaring. Everything to irritate Greenspan. If we get a little whiff of inflation, I think they'll be right back talking about more tightening."