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Frenzied buying of the 30-year Treasury bond morphed into a more-or-less equal-opportunity rally in the Treasury market today.

Snapping the recent trend, which has seen the 30-year bond outperform shorter-maturity Treasuries by ostentatious margins, every Treasury benchmark rallied smartly today, with the exception of the two-year note, which gained just a little.

The 30-year bond, which traded up as much as 3 3/32 during the session, ended up 1 27/32 at 99 22/32, dropping its yield 13.8 basis points to 6.148%, the lowest since mid-November. The 10-year note, which traded down as much as 31/32 overnight and up as much as 1 21/32 around midday, finished up 28/32, dropping its yield 12.7 basis points to 6.448%, the lowest since Dec. 31. The five-year note, which traded down as much as 6/32 in the morning and up as much as 1 3/32 around midday, ended up 19/32 at 97 13/32, cutting its yield 14.9 basis points to 6.513%, the lowest since Jan. 10. And the two-year note, which traded down as much as 4/32 last night and up as much as 12/32 around midday, ended up 4/32, shaving its yield 6.8 basis points to 6.528%, the lowest since Monday.

The action inverted every segment of the Treasury yield curve -- meaning that the two-year note's yield is highest, followed by the five-year note's, followed by the 10-year note's, followed by the 30-year bond's -- for the first time since March 1989.

At the

Chicago Board of Trade

, the March

Treasury futures contract finished up 31/32 at 94 14/32.

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The shift in the action -- from a rally that lifted the long bond and left everything else far behind -- to a rally that also lifted the five- and 10-year notes quite a bit, had at least two sources, market analysts said.

The first was flight-to-quality. Around midday, rumors swept trading desks that the massive repricing of the Treasury market in the last few weeks has some players in deep enough trouble that the

New York Fed

was getting involved. The New York Fed subsequently denied the rumors.

The second was a profound sense that the long bond's rally had gone too far. Traders who owned it, and were simultaneously short the five- or 10-year note in order to profit from additional outperformance by the bond, took profits on the trade by selling the bond and buying the intermediate notes back.

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That sense was bolstered by the fact that the Treasury Department's quarterly auction of new five-, 10- and 30-year notes and bonds takes place next week. Prices usually fall in the days leading up to the so-called quarterly refunding. And since the 30-year's price has risen so much, it has further to fall. "With the auction, you can make the case that

the 30-year bond is going to give 20 to 25 basis points back before the bids go in,"

Thomson Global Markets

managing analyst Ken Logan said.

The early trade, in which only the 30-year rallied strongly, was an extension of the trend of the last few weeks, in which the Treasury Department's plans to shrink the supply of 30-year bonds has driven those prices up relative to the shorter-maturity Treasury benchmarks. At the same time, shorter-maturity note yields can't rally because the


, which yesterday hiked the

fed funds rate

to 5.75% to 5.5%, is poised to hike it further in the coming months to curb economic growth. Short-maturity yields are heavily influenced by the fed funds rate. As a result, the yield curve has inverted: Long-maturity yields have dropped below short-maturity yields.

The rage to own the 30-year bond grew from seeds planted in August, when the Treasury cut the number of 30-year bond auctions from three a year to two. It accelerated last month, when the Treasury announced the details of a plan to buy long-dated securities back from investors -- another measure to reconcile the federal budget surplus with the government's borrowing program. And it went into overdrive yesterday, when the Treasury

said it will "significantly" reduce the size of one of the two annual long bond auctions.

Describing this morning's action,

Warburg Dillon Read

Treasury market strategist Mark Mahoney said: "It's just a very, very big panic right now." Investor demand for the newest 30-year Treasury bond, the one issued last August, with a 6.125% coupon and maturing in August 2029, was "an extraordinarily huge panic, comparable to the six-and-a-quarter of August '23 squeeze of 1993 and the nine-and-a-quarter of Feb. '16 squeeze of 1986," Mahoney said, referring to previous instances of investor frenzy to own particular bond issues. "People are selling off-the-runs to buy the bond, selling corporates to buy the bond, selling mortgages to buy the bond, overseas guys are buying the bond. We've got a pretty massive panic going on right now."

The 1993 panic, like the current one, was triggered by cutbacks in the Treasury's auction schedule,

Wrightson Associates

chief economist Lou Crandall said. In May 1993, the Treasury reduced the number of 30-year bond auctions from four a year to three, and discontinued seven-year note issuance. The 1986 panic, Crandall said, happened when Japanese investors who owned a large chunk of the 30-year bond Mahoney named did not sell it and buy the next 30-year issue, the 7.25% coupon maturing in May 2016, as expected. That left dealers unable to cover their short positions in the February 2016 bond, Crandall said.

Swap spreads, an indicator of willingness to own any kind of spread product -- corporate bonds, mortgage-backed securities, etc. -- moved out sharply again today, indicating increasing distaste for spread product. The bellwether 10-year swap spread was lately 96.50 basis points, up from 70 a week ago and the highest since September, which was the worst period for spread markets since the panic of October 1998.

The fever to own the 30-year issue spread to the rest of the Treasury market when rumors started to spread that the big changes that have taken place over the last three weeks in the shape of the Treasury yield curve have resulted in trading losses of such magnitude that one or more large financial institutions is on the brink of collapse.

Treasury prices peaked for the day -- and stock prices hit their lows -- at the point when the rumors were in full swing, around 12:30 p.m. EST.

Huge changes in the yield relationships between Treasuries of different maturities matter because traders make bets on them. For example, a trader who expects the difference in yield between the two-year Treasury note and the 30-year Treasury bond to increase can buy the two-year note and short the 30-year bond. As long as the difference in yield increases, the trade will be profitable, even if the prices of both securities drop.

The changes in yield relationships over the last few weeks have been extraordinary. In just one example (there are dozens, when you count the futures and other derivatives markets related to the Treasury market), the difference in yield between the 30-year bond and the two-year note went from 24.8 basis points on Jan. 22, to negative 38 at last glance. Earlier today, the spread was negative 55.4.

For every trader who made a killing on the move, there's one in critical condition. "A lot of people are happy, and a lot of people are unhappy," said one market analyst.

One of the more persistent rumors over the last week has had a major West Coast money management firm on the happy side, having sold a large quantity of mortgage-backed securities to dealers, and bought a large quantity of long Treasuries. The dealers, on the unhappy side, were said to have sold the long Treasuries to the firm, thinking they would cover their short position at next week's refunding. But the market went up so quickly that they couldn't wait. Their buying supposedly helped drive the market higher today.

Economic Indicators

There were no first-tier economic indicators today. This week's highlight, the January

employment report

, comes out at 8:30 a.m. EST tomorrow.

Today, the weekly count of

initial jobless claims

rose to 274,000 from a revised 279,000 last week.

Factory orders

rose 3.3% in December, beating the consensus forecast of economists polled by


for a 2.2% gain. In addition, the November gain was revised up to 1.4% from 1.2%. And the year-on-year pace rose to 10%, the fastest since February 1995.


Purchasing Managers' Non-Manufacturing Index

fell to 52.5 in January from 55.5 in December.

Also, the


released the

minutes of the Dec. 21

Federal Open Market Committee

meeting. They revealed no dissents from the decision to keep the fed funds rate unchanged at 5.5% ahead of the Y2K date change.

Currency and Commodities

The dollar fell against the yen and the euro. It was lately worth 107.53 yen, down from 108.16 yesterday. The euro was lately worth $0.9906, up from $0.9762 yesterday.

Crude oil for March delivery at the

New York Mercantile Exchange

rose to $28.03 a barrel, from $27.80 yesterday.


Bridge Commodity Research Bureau Index

rose to 210.29 from 209.60 yesterday.

Gold for April delivery at the


rose to $289.9 an ounce from $287.7 yesterday.