Treasuries rallied smartly today on light volume and no major economic news. A coupon pass and a packed slate of corporate new-issues were the driving forces as the 30-year bond's yield fell to its lowest level in nearly three months. Shorter-maturity issues remained within their recent trading ranges but also posted substantial gains.

The benchmark 10-year Treasury note gained 18/32 to 103 18/32, dropping its yield 8.1 basis points to 6.004%.

The 30-year bond rose 31/32 to 106 2/32, lowering its yield 6.7 basis points to 5.818%, a level it hadn't seen since mid-April.

At the

Chicago Board of Trade

, the September

Treasury futures contract gained 29/32 to 98 14/32.

On a day without any major economic releases, the coupon pass took center stage. In two separate operations, the Fed purchased $876 million of Treasuries maturing in 2002 and $500 million of bonds due between 2016 and 2028.

The operations had an outsized impact on trading because volume was light, market sources said. According to tracker

GovPX

, $22.8 billion of Treasuries changed hands through 3 p.m. EDT, 25% less than average for a Thursday over the last month.

"It was all the coupon passes," said Gib Clark, manager of government trading at

Zions First National Bank

in Jersey City. "Everybody was on the buy-side today -- customers and the Fed -- so we're getting a bit of a short-covering rally."

Well, maybe not

all

. Some $4 billion of new investment-grade corporate bonds were sold to investors today, most prominently $1.25 billion of five-year notes from

Goldman Sachs

(GS) - Get Report

.

For the week, new corporate issuance is expected to exceed $16 billion, compared to a year-to-date weekly average of $7 billion, according to

IDEAglobal.com

. Corporate issuance can put pressure on Treasuries because underwriters may sell Treasuries to hedge their market risk and investors may sell Treasuries to finance the purchase of new corporate issues. But it can also give Treasuries a lift as underwriters unwind their hedges after having placed an issue with investors.

Still, some market watchers found it surprising that Treasuries largely held onto their gains ahead of tomorrow's key economic releases -- the

Producer Price Index

(

definition |

chart |

source

) and

retail sales

(

definition |

chart |

source

), both for June.

"I can't believe people are taking big positions in anticipation of weak numbers," said Mike Ryan, senior fixed-income strategist at

PaineWebber

.

Ryan said some of the buying of long-dated Treasuries today was based on their relative value to shorter-term issues. The 30-year bond ended the day 47.4 basis points lower in yield than the two-year note, but it started the day 44.1 basis points lower.

There was a bit of friendly economic news.

Initial jobless claims

(

definition |

chart |

source

) rose to 319,000, the highest since June 1999, from 292,000 the previous week, indicating an easing of tight labor market conditions.

Economic Indicators

In other economic news,

import prices

(

definition |

chart |

source

) rose 0.8% overall in June, but were unchanged excluding oil.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 108.13 yen, up from 108.10. The euro was worth $0.9371, down from $0.9421. For more on currencies, see

TSC's

Currencies column.

Crude oil for August delivery at the

New York Mercantile Exchange

jumped to $31.47 a barrel from $30.32.

The

Bridge Commodity Research Bureau Index

rose to 222.60 from 219.82.

Gold for August delivery at the

Comex

fell to $280.90 an ounce from $281.40.