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Debt futures fall

on thin activity

CHICAGO: US debt futures ended lower on Thursday but with activity thin.

Price direction was partly linked to expiration of September options on U.S. T-bonds and 10-year note futures.

For much of the day, the September T-bond futures contract was seen moving around 110-00, which traders said was a key strike price.

"It's a thin market. We are gravitating towards 110-00 even," said one trader. Traders said similar action was evident in the 10-year T-note.

The 10-year note was also seen hovering around 108-00, which was seen as a key strike price.

Economic data had little overall impact on prices. Data on Thursday showed that U.S. weekly jobless claims rose to 338,000 in the week ended August 12, from a revised 332,000 the prior week. The U.S. June trade gap widened 2.4 percent to $11.31 billion.

Traders said the market was under some pressure after news of an upturn in the Philadelphia Federal Reserve's index of business activity. The index for the manufacturing sector rose to 4.4 in August from a negative 23.7 in July.

Traders said the market retained a fairly resilient tone.

Eurodollar futures were helped by perceptions that the situation could be heating up in Iraq.

During the morning, U.S. defense officials said that the U.S. was building up its forces in and around the Gulf, due to unusual military activity by Iraq.

That information helped to bolster Eurodollars, which were seen under some pressure following expectations that one commercial firm was selling futures to offset a large purchase of September calls.

December Eurodollars remained above key support at 94.00, amidst some expectations that the level will hold for a while yet. One trader believed eventually, however, that level would be tested, as well as the seven percent yield level on the cash 30-year bond.

"People are still intimidated by seven percent," one trader said. But, he added, corporate borrowing in weeks ahead could force more supply into the market, which may also weigh heavy on prices going forward.

Prices at settlement -- September T-bond futures down 5/32 at 110-2/32, September T-notes down 7/32 at 107-31/32, December 90-day T-bills down four basis points at 94.57, and December three-month Eurodollars down four basis points at 94.07.-Reuter