Long-maturity Treasuries fell today while short-maturity ones rallied, as the bond market reacted to, among other things, the durable goods orders report, the Fed's decision on interest rates, the largest-ever corporate new-issue and a two-year Treasury note auction.

The stronger-than-expected durable goods report put the entire market under pressure early in the session, and the corporate new issue, from

Deutsche Telekom

(DT) - Get Report

helped keep it under pressure through midsession by prompting investors to sell Treasuries in order to buy the new corporate bonds.

But, in the afternoon, the completion of the two-year note auction and the Fed's decision to leave the

fed funds rate unchanged -- which was expected by most but not all market participants -- allowed the shortest-maturity Treasuries to rally a bit.

The 10-year Treasury note ended the day down 3/32 at 102 26/32, lifting its yield 1.3 basis points to 6.106%. And the 30-year bond fell 6/32 to 104 3/32, lifting its yield 1.1 basis points to 5.954%.

But the two-year note, which traded down as much as 4/32 intraday, ended unchanged at 100 7/32, its yield 6.489%. And the five-year note rallied 3/32 to 102, lowering its yield 2.2 basis points to 6.264%.

At the

Chicago Board of Trade

, the September

Treasury futures contract lost 11/32 to 96 13/32.

This morning's durable goods report cast doubt on the theory that the economy is slowing.

Durable goods orders surged 6.0% in May, blowing away the

Reuters

consensus forecast that they would rise by just 2.8%. And it wasn't all transportation-equipment orders; excluding them, durables orders rose 6.6%, their biggest gain since January 1985.

The gain almost totally reversed April's large drop in durables orders, and it lifted the year-on-year growth rate to 11.8%, the highest since December.

But the Deutsche Telekom deal had just as pervasive an effect on the Treasury market, market participants said.

The multi-currency deal was increased in size early this morning from the equivalent of $14 billion to the equivalent of $14.5 billion. It included $9.5 billion of dollar-denominated five-, 10- and 30-year bonds, the most ever sold in a single shot; the equivalent of $2.8 billion of euro-denominated five- and 10-year bonds; the equivalent of $1.4 billion of sterling denominated five- and 30-year bonds; and the equivalent of $853 million of yen-denominated five-year bonds. The foreign-currency-denominated portions were priced during London trading hours, and the dollar portion was priced shortly before 11 a.m EDT.

In addition to depressing Treasury prices in general by flooding the bond market with an alternative investment, the pricing of the dollar portion wrought havoc with the relationships between the most-recently-issued Treasuries and older bonds and notes, which took the brunt of the selling pressure, said a trader at a primary dealer firm. "The off-the-runs were all over the place against the currents for hedges and swapping," he said.

Later in the day, though, long-maturity Treasuries pared their losses and short-maturity ones moved into positive territory after the 1 p.m. EDT two-year note auction. Dealers bought the $10 billion issue at a yield of 6.483%, slightly lower than where two-year notes were trading at the bidding deadline, indicating strong demand.

The Fed's decision to leave the fed funds rate unchanged, announced at about 2:15 p.m., added to the gains in Treasuries. While the decision was widely expected, a not-insignificant minority thought the

Federal Open Market Committee would raise the rate. Prior to the announcement, the

fed funds futures contracts listed at the CBOT were discounting 24% odds of a 25-basis-point hike. Accordingly, when the decision was announced, the market priced the rate-hike out.

At the same time, market participants said, the market took some comfort from the FOMC's

statement announcing its decision, in which it acknowledged that "the expansion of aggregate demand may be moderating toward a pace closer to the rate of growth of the economy's potential to produce."

"Some people thought the statement might be slightly less hawkish than they thought it would be," said Mark Sauvigne, government bond trader at

Chase Securities

.

While the statement only bolstered popular opinion that the FOMC will deliver another 25-basis-point rate hike at its next meeting on Aug. 22, hope that that will be the last hike of the cycle spurred buying of the shortest-maturity Treasuries, whose yields are most sensitive to changes in the short-term fed funds rate.

In other debt-market news today, the

Treasury Department

announced the details of tomorrow's buyback operation. The Treasury said it will accept offers for 30-year bonds maturing between February 2019 and August 2023, and buy up to $2 billion par amount of bonds.

Economic Indicators

In other economic news, the weekly

Mortgage Applications Survey

detected a decline in refinancing activity and a slight increase in new mortgage activity. The Refinancing Index fell to 319.2 from 329.3, while the Purchase Index rose to 305.8 from 305.7.

Currency and Commodities

The dollar gained against the yen and the euro. It lately was worth 105.52 yen, up from 105.33. The euro was worth $0.9399, down from $0.9457. For more on currencies, please take a look at

TSC's

Currencies column.

Crude oil for August delivery at the

New York Mercantile Exchange

fell to $31.90 a barrel from $32.06.

The

Bridge Commodity Research Bureau Index

fell to 224.95 from 226.02.

Gold for August delivery at the

Comex

soared to $294.30 an ounce, a three-month high, from $287.50.