Bond Market Rallies but Legs Aren't Yet Visible

This may come as a shock, but things haven't looked quite this good in the bond market since just after the Fed raised interest rates in August -- and before that, since last year. Treasury futures broke out of a recent trading range last week, boosted most prominently by a falling stock market. But bonds' two-day, 2-point rally was built on little else.

Looking ahead, the market has reasons to be optimistic. The Fed may be on hold and corporate supply should dwindle ahead of Y2K, increasing demand for Treasury bonds. Price inflation is still weak.

But late August's euphoria deflated within two weeks, and this rally may suffer the same fate. The economy hasn't slowed much, and the Fed, as always, is unpredictable. Commodity and oil prices, as well as the dollar, are no longer supportive of lower interest rates.

Mr. Outside

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