The 30-year government bond, traditionally a benchmark of broader Treasury market trends, traveled in its own orbit Friday as its price fell while shorter-term maturities were mixed.
But the 30-year issue's extraordinary two-week rally was viewed as far from over in the current climate of sluggish economic growth and low inflation.By day's end, the price of the 30-year bond was down 1/8 point, or $1.25 per $1,000 in face value.
Its yield, which moves in the opposite direction, edged up to 6.21 percent form 6.20 percent late Thursday. Thursday's long bond yield was the lowest since the government began regular auctions of 30-year issues 16 years ago.
The price of the 10-year bond, meanwhile, was up 1/32 point while shorter term maturities fell 1/32 point to 1/16 point, the Telerate Inc. financial information service reported.
Analysts said there was no single reason for the market
s mixed performance. Further, traders said they were confused by the divergent yields of different types of 30-year bonds.
In secondary trading, the price of the new, or cash 30-year bond, which was auctioned last Thursday, continued to outperform the previously auctioned 30-year bond by a wide margin.
Reflecting sharply higher demand for the new bond, its yield in the secondary market was around 0.15 percentage point lower than the old bond's yield.
Participants said the strong demand for new 30-year bonds was fueled by an impending drought of upcoming issues, which has driven up their market value. The Treasury Department has acted to sharply scale back its sales of the benchmark security. Last Thursday's 30-year auction was the last for six months.
However, the wide gap between yields of old and new bonds has created havoc for many traders, who depend on consistency in their value to carry out their transactions.
"The cash bond is trading on a completely different planet from the rest of the market," said John Canavan, an analyst with Stone & McCarthy Research Associates Inc. in Princeton, N.J.
"If you're looking for any one answer for what's going on in the market, it just doesn't exist," he said. Part of the volatilty was tied to an unusually small number of investors holding a large portion of the newly auctioned bonds, Canvan said. That means that a few transactions can skew the bond's value in secondary trading.
Jim Kenney, head trader in government securities at Prudention Securities Inc., said many investors were adjusting their positions before the weekend.
Some of that involve profit-taking by traders trying to cash in following the two-week rally, which has driven down yields on 30-year bonds by 0.25 percentage point.
On Thursday, the long bond rallied on an unexpected surge in the nation's trade deficit, which added to a string of recent evidence that the economic recovery is sputtering.
M s M p for many traders, who dEpend