With the government's latest data pointing to persistent weakness in the economy, the bond market decided this week a further easing of credit policy by the Federal Reserve - and lower interest rates - are a foregone conclusion.
The central bank did not act to lower rates immediately, but that did little to stop the party."It's not a question of if, it's definitely a question of when," said David M. Blitzer, chief economist at Standard & Poor's Corp. in New York.
The handwriting for the Fed to ease seemed to be on the wall Thursday, when the government announced the number of Americans filing initial unemployment claims reached a seasonally adjusted 543,000 in the week ended March 23.
And sales of domestically made cars weakened in late-March reporting period, leaving automakers' first-quarter sales down 14.3 percent from 1990 levels.
As typically happens, however, what's bad for Main Street is good for the bond market, since investors turn to the safety of government securities in times of economic distress.
Investors also turn to bonds in a recession because there is little chance inflation will take a bite out of their fixed returns.
Ten-year Treasury notes ended Friday at 98 10/32 to yield 7.98 percent vs. 97 27/32 to yield 8.05 a week earlier. Five-year notes ended at 100 13/32 to yield 7.63 percent vs. 99 31/32 and 7.74 percent.
Three-year Treasury notes closed at 99 8/32 to yield 7.14 percent vs. 98 29/32 to yield 7.27. Two-year notes were at 100 13/32 to yield 6.88 percent vs. 100 4/32 and 7.01 percent.
Six-month Treasury bills were discounted at 5.73 percent to yield 5. 98 percent vs. the prior week's 5.79 percent discount and 6.04 percent yield.
Three-month Treasury bills were discounted at 5.70 percent to yield 5.86 percent vs. a 5.76 percent discount and 5.92 percent yield.
Lehman Brothers' long-term bond index finished the week at 1,328.88, compared with 1,320.77 at the close of last week.