Treasury Gains Are Limited to the Long End

The long bond gets spillover support from yesterday. Plus, an update on the new corporate-bond price reporting system.
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The bond market's been very quiet in the first few hours of trading this morning. The 30-year Treasury bond is higher but volume is down, indicating limited support for a full-fledged rally.

Traders said today's activity is piggybacking yesterday afternoon's recovery, after Friday's options expiration caused a Monday-morning selloff. Trading is also being driven by the knowledge that temporary factors, including two forthcoming economic releases and buying relating to month-end index extension, should support the long end in coming days.

"This is follow-through from yesterday; we held some

technical levels and that got some people thinking positive," said Bill Kirby, co-head of government trading at

Prudential Securities

. "Not that we're off to the races, but technically the market looks a little better today."

While the intermediate maturities are being constrained by the latest batch of corporate supply, the 30-year bond is rallying. Lately the long bond was trading up 15/32 to 95 23/32. The yield fell by 3 basis points to 5.55%.

As has been the case with up days lately, volume is down. Volume as of 10 a.m. EDT was down 24% when compared with the average second quarter Tuesday, according to

GovPX

, indicating that support for a rally is meager.

"Volume's not huge, so again, the moves are getting a little exaggerated, but the selling has kind of stopped, and buyers are coming in," Kirby added.

The market is expecting positive news from Thursday's first-quarter

Employment Cost Index

report. It's expected to rise only 0.8%, which would be continued evidence of a lack of wage pressures.

GDP

is released Friday, and traders are eyeing the

implicit price deflator

, another inflation indicator, which rose only 0.8% in the fourth quarter last year. Investors are also expected to buy bonds to lengthen the duration in their portfolios to match the performance of aggregate indices, which extend their duration at the end of the month.

The 10-year note was up 5/32 to yield 5.21% as investors and dealers prepare for impending supply by selling Treasuries in advance of sales.

Sprint

(FON)

and

Delphi Automotive

(DPH)

are expected to sell securities totaling $3 billion and $1.5 billion, respectively, later this week.

Yesterday's summit among

G-7

ministers produced the usual homilies about stimulating growth in Japan and the rest of the world -- but it's not affecting the bond market. Remarks by

Bundesbank

head

Hans Tietmeyer

and

European Central Bank

member

Antonio Fazio

supported the euro, but it hasn't caused the bond market to weaken in response. The euro rose to $1.065 against the dollar from yesterday's close at $1.059.

Sales of existing single-family homes set a new record in March. The

National Association of Realtors

reported that the rate of seasonally adjusted annual sales rose to 5.05 million units, surpassing the 5.04 million record set in January. February's 5.02 million rate was left unchanged. While strength in the housing sector is an old story, housing strength generally points to continuing strength in consumer spending.

Corporate Trade Reporting System Delayed

The reporting system for interdealer corporate bond trades

devised by the

Bond Market Association

and

GovPX

failed to make its planned debut last night due to technical glitches, but it should be up and running by tomorrow, a GovPX spokesman said.

"It's just some start-up issues," John Lehner of GovPX said.

In response to pressure from

Securities and Exchange Commission

Chairman

Arthur Levitt

and from

Congress

to bring transparency to the corporate bond market, the Bond Market Association, which represents the firms that underwrite and trade all types of bonds, selected GovPX to build a rudimentary system to collect and disseminate the prices at which seven interdealer brokers buy and sell corporate issues. The association estimates that the interdealer brokers account for about 30% of total trading activity in the corporate market.

The system will, at the end of each day, publish a list of the transactions that occurred that day. It was to have debuted for GovPX subscribers and on the GovPX

Web site yesterday evening but appeared in neither place. The association also plans to make the information available on its

Web site in a searchable format, but that was not scheduled to begin for several weeks.

--

Elizabeth Roy