A Mild Rise for the Inactive Treasury Market - TheStreet

A Mild Rise for the Inactive Treasury Market

Stasis is the rule as Treasury traders wait for bigger, bolder economic data.
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Wednesday's supposedly the day doctors play golf. Call it a hunch, but there must have been a few investors filling out the foursomes today.

Treasury traders slogged through a meager trading session today, ignoring this morning's

trade deficit

release to sit on their thumbs. Investors are waiting for several third-quarter releases, such as the

Employment Cost Index



reports due next Thursday, as well as the monthly

employment report

, to determine whether the market will reverse itself here or continue to worsen.

"We're at the highs of the year in terms of yield," said Bill Hornbarger, Treasury market strategist at

A.G. Edwards

. "People feel it's going to break one way or the other, but they're afraid to take big positions, particularly on the buy side."

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Which helps explain why


volume was down 27.5% today when the 30-year bond's yield sits near its two-year high. The 30-year bond was lately up 7/32 to 97 5/32, knocking the yield down 1 basis point to 6.34%.

"The market's been beat up so much that when you look at all the surveys, people are just afraid to buy," said Mitch Stapley, chief fixed income officer at

Kent Funds

in Grand Rapids, Mich. "This market has been so unrelentingly bearish to people, they'd rather buy the bond 3 points higher if they felt they were finally catching the right side of the trend."

Stone & McCarthy Research Associates'

most recent survey of portfolio managers showed them holding virtually neutral positions in terms of duration. Holding longer-dated securities than the average index indicates a bullish inflation outlook; piling into short-dated paper indicates a bearish outlook. (


took a close look at bond-market sentiment in a

story yesterday.)

"We think bonds are a real good buy here," Hornbarger said. "But we've felt that for 50 basis points. People are afraid, not knowing what Fed is thinking."

The market's general agita didn't translate to any sustained reaction to the international trade deficit figures, released at 8:30 a.m. EDT. The trade deficit decreased to $24.1 billion in August from July's revised record of $24.9 billion, due to a 3.7% increase in exports. Imports also continued to increase, rising 2% in August.

The bond market's reaction to the trade figure was initially negative, as a narrowing trade gap will add to GDP growth. The market used to cheer when the trade gap widened, because it was one of the few factors slowing the U.S. economy.

But when imports are increasing at a faster rate than exports, that doesn't speak to slowing economic growth; it simply underlines the incredible strength of U.S. demand. Imports are up 15.2% on a year-over-year basis, compared with a 7.6% rate of increase for exports. (Exports are increasing at its fastest year-over-year rate since January 1998.) The 30-year bond fell as much as 7/32, but as Stapley succinctly put it, "we're waiting for the ECI."

Tomorrow the

Philadelphia Fed's

index of business sentiment is released. Economists as polled by


expect the overall index to fall to 14.5 in October, compared with a 17.6 reading in September.