U.S. TREASURY MARKET ENDS SHARPLY HIGHER
The U.S. Treasury market ended sharply
higher, reassured by news that the Federal Open Market
Committee voted in February to maintain the then-existing
degree of restraint on bank reserves, dealers said.
    News of a weaker-than-expected March employment report and
a minor bounce back in the dollar prompted short-covering that
pushed coupon issues higher, while an easing in the Federal
funds rate below six pct helped short-dated issues.
    The key 7-1/2 pct 30-year Treasury bond price finished 3/4
higher at 95-27/32, pushing the yield down to 7.86 pct from
7.93 pct yesterday.
    Danuta Zielonka of Wertheim Schroder Co Inc said that
recent slowing in the growth of the monetary aggregates is a
another factor arguing against firmer Fed policy.
    "Money growth has been slowing perceptibly in March which
should give them more room to not tighten," she said. "Both M2
and M3 are will be at the low end of their target ranges in
March."
    "The FOMC minutes are neutral for the bond market,"
Zielonka said. "Dollar considerations will prevent them from
easing anytime soon, but they can't tighten with the economy
weak and the banks having to deal with Brazil."
    Doubts on the economy's strength were underscored not only
by a smaller-than-expected 164,000 gain in March non-farm
payrolls, but also by a downward revision in February's gain to
236,000 from a previously reported 337,000.
    The market's initial reaction to the data was restrained by
fears the employment news would undermine the dollar, but when
the dollar maintained a firm tone, the bond market extended its
gains.
    Profit-taking pulled bond prices down from the day's highs,
but a record close in the U.S. stock market stimulated buying
late in the day that offset this somewhat.
    Still, coupon issues were unable to recover completely from
this week's steep losses as trade tensions between the U.S. and
Japan pressured the dollar and discouraged Japanese investors
from buying U.S. Treasury bonds.
    The current 7-1/2 pct Treasury bond traded down to 94-11/32
in Tokyo this week, pushing the yield to 7.98 pct. This capped
the U.S. 1987 high yield on the 30-year bond of 7.93 pct, seen
yesterday.
    Treasury bills advanced on the week. The six-month bills
rose one basis point, but three-month bills fell 17 basis
points and the year bill fell two basis points.
    Dealers said that the sharp drop in three-month bills
resulted in part from recent outright bill purchases for a
customer, believed to be related to heavy intervention by
foreign central banks to support the dollar.
    A drop in the Fed funds rate to 5-15/16 today underpinned a
decline in bill rates. It traded at this level throughout the
session, down from yesterday's 6.14 pct average.
    Three-month bills closed two basis points lower at 5.48 pct
bid. Six- and 12-month bills both dropped nine basis points to
respective bids of 5.70 pct and 5.75 pct.
 Reuter
