The bond market closed slightly higher in thin trading this week as many players opted to stay on the sidelines during the holiday-shortened week.
Traders and analysts said the strength of the dollar, attributed to anxiety about reports of a possible coup brewing in the Soviet Union, provided the impetus for higher note and bond prices.In addition, market participants are anticipating next week's slate of economic data, particularly the unemployment figures for November, to support the assumption of a weak recovery at best.
Continuing concern about how Washington will respond to the economic slump pushed up the yield on longer-term bonds, while anticipation of a further easing by the Federal Reserve held yields of shorter-term notes in check. The result was a further steepening of the two-to-30-year yield curve to record levels.
"The one thing the bond market hates is uncertainty, and that's what we're facing major league right now," said Pat Beimford, a vice president at Kemper Financial Services in Chicago. "Trading will be choppy and nervous on the long end until Washington comes up with an economic package. The long end of the market is gripped in a panic that Washington will come up with a plan that will push up inflation."
In addition to concern about how Washington will deal with the crisis, analysts said long-term yields were driven up by a sizeable sell-off of long bonds by Japanese investors.
"Ordinarily with the economic news we've seen in the past few weeks, you would expect the bonds to do well, but these factors have hurt the market," Beimford said.
Dana Sorrentino, a money market economist at Citibank, said the yield curve could steepen even further if the November unemployment figures released next Friday turn out to be as bad as many analysts expect.
"If the employment report is poor, the Fed might ease again," Sorrentino said. "When the Fed eases interest rates, it usually brings down short-term yields, but it doesn't have much impact on long-term bonds."
The market responded favorably Tuesday to news that consumer confidence had dropped to levels not seen since the recession of the early 1980's.
The weekly unempolyment figures released on Wednesday, showing that jobless claims had fallen sharply, temporarily took the wind out of the market's sails.
But that news was largely offset by another report released Wednesday showing that personal income had grown by an anemic 0.2 percent in October, with most of that increase resulting from government transfers for welfare and other social programs.
In addition to the monthly unemployment figures, other economic indicators scheduled to be released next week include the index of leading indicators and the revised figure for gross national product.
The price of the 30-year Treasury bond closed in Friday's session at 100 23/32 for a yield of 7.94 percent, up from 100 5/32 for a yield of 7.98 percent. Lehman Brothers' long-term bond index ended at 1369.71, up 9.71 from 1362.85 a week earlier.
Other Treasury yields ended mixed for the week.
The 10-year Treasury notes stood at 100 27/32 to yield 7.37 percent compared with 100 11/32 to yield 7.43 percent in the prior week. Five-year notes stood at 100 02/32 to yield 6.47 percent versus 101 10/32 to yield 7.43 percent a week earlier.