950812

Debt futures close

with large losses

CHICAGO: US debt futures on Friday closed on a soft note, ending sharply lower and near the session lows.

Traders blamed pressure primarily on concern about heavy dealer inventories after this week's record Treasury refunding.

"There's a lot of paper still floating around from the auction," said one futures broker.

In addition, some talk the next move by the Federal Reserve could be a tightening measure rather than another easing, as is generally anticipated, also pressured contracts, particularly in deferred months on short-dated contracts.

Talk also circulated of large hedge fund selling in cash five-year notes. Traders also said dealers were selling futures to hedge cash positions and some disgruntled longs were liquidating positions.

September bonds broke key support at 109-19/32 and again at 109-9/32, which triggered selling stops that helped drive contracts to daily low. However, prices recovered from support around the 109-00 area after hitting the lowest level since May 15.

December Eurodollars slid to the lowest level since July 25. Traders said the drop briefly through 94.15 could be bearish for Eurodollars.

September 10-year notes hit its lowest level since May 23.

After September bonds posted a sharp, late drop on Thursday, open interest was estimated up more than 7,000 contracts. Traders said that indicates that new short positions were established on Thursday.

Traders said light bidding near the close lifted prices from the lowest levels of the day.

At settlement, September T-bond futures were 31/32 point lower at 109-04/32, 10-year T-notes were 22/32 lower at 107-25/32 and muni-bonds were 23/32 lower at 110-10/32. December IMM T-bills were 12 basis points lower at 94.63 and Eurodollars were 13 points lower at 94.12.-Reuter