A Quiet Day Ends a Bumpy Week for Bonds - TheStreet

Today, the Treasury market managed to end a long, crazy week on a reasonably quiet note. After the meager demand displayed at this week's quarterly refunding auction (especially yesterday's $10 billion sale of 30-year Treasuries), investors joined the fray today, rallying the market. Treasuries were also helped by a weaker-than-expected retail sales report.

The market settled into a quiet range in the afternoon, perhaps steeling itself for stepping back into the fire next week. A full calendar of some of the most important monthly economic releases awaits, and if that isn't enough,

Federal Reserve

Chairman

Alan Greenspan

will appear before Congress with his semi-annual

Humphrey-Hawkins

testimony, where he'll assess the economic outlook for the coming year.

The 10-year Treasury bond was lately higher by 14/32 to 99 6/32, pushing the yield down 7 basis points to 6.612%. The 30-year bond was up 21/32 to 99 18/32, yielding 6.282%. The five-year note was up 7/32 to 96 20/32 to yield 6.714% and the two-year note was up 2/32 at 99 17/32 to 6.632%.

The March bond contract, traded on the

Chicago Board of Trade

closed up 16/32 to 93 10/32.

Investors finally began looking for opportunities today, after a volatile period where confusing signals from the

Treasury Department

put many people on the sidelines. Comments made at the Treasury's refunding announcement last week had some temporarily believing that sales of the long bond could be eliminated, pushing the yield down by almost 30 basis points in two days. The result was one of the worst 30-year bond auctions in recent memory.

The excessive volatility spurred investors to sit it out, and they only started to support the market with buying today.

Strategists believe the instability will decline next week. For one, the threat of new Treasury supply is out of the way. Also, whatever short positions the market had been holding -- and as of Jan. 25, speculators in the bond market were holding a record short positions -- were certainly flushed out in this week's seasick trading.

"A lot of accounts had bad trades," said John Blough, chief investment strategist at

Fahnestock

. "People expected the yield curve to become more positively sloped after more

Fed tightening. That didn't happen, and when people started putting flatteners on it (betting that long yields would continue to outperform the short end of the curve), it only exacerbated the move." In other words, those who were betting on a return to a normally shaped curve were in worse shape, and were forced to sell.

It's telling that people expect

less

volatility in a week that not only contains a Greenspan appearance, but the release of the

Producer Price Index

and the

Consumer Price Index

.

It's hard to imagine Greenspan's tenor has changed much since his January

appearance at the

Economic Club of New York

(unless he's a bass now, of course). Then, the chairman warned of imbalances in the economy and the startling pace of consumer demand, but didn't characterize it as out-of-control. Christopher Low, chief economist at

First Tennessee Capital Markets

, expects as much at Greenspan's appearance Thursday.

"Based on past performance, the January New York Economic Club speech is almost an exact template of what we're going to see next week," said Low. "There's going to be cautious optimism -- 'the economy is growing faster, but we can get it under control.'"

The market will also face more supply, this time of the corporate variety. Late in the day,

BellSouth

(BLS)

sold $2 billion in 10-year notes and 30-year bonds. Next week,

Freddie Mac

(FRE)

will sell $3 billion in three-year notes.

Economic Indicators

The consensus estimate for the Producer Price Index, an important measure of wholesale inflation, is for a 0.2% increase in the overall PPI in January, and for a 0.1% increase in the core PPI, according to

Reuters

. The core PPI excludes food and energy prices. The PPI is released Thursday, 8:30 a.m. EST.

The Consumer Price Index is expected to increase 0.3% in January, according to Reuters. Economists are looking for a 0.2% increase in the core CPI. On a year-over-year basis, the CPI is currently rising at a 2.7% rate. The CPI is due out Friday at 8:30 a.m.

Retail sales rose 0.3% in January, lower than economists' expectations for a 0.6% increase, according to

Reuters

. Excluding autos, sales fell 0.3%. Economists were looking for a 0.5% increase. December's retail sales were revised up to a 1.7% increase from an original 1.2% estimate in December. Excluding autos, sales were revised up to a 1.9% gain in December from an original 1.4% estimate. November's figures were also revised higher, the

Labor Department

said.

However, a 2.2% decline in food store sales -- which Charlie Reinhard, market strategist at

ABN Amro

, surmised was a weather-related event -- was responsible for some of the decline. Reinhard said the strength in auto sales and in clothing sales prove that consumer demand isn't slowing just yet.

Excluding autos, the 0.3% decline is the first time sales have dropped since December 1997. The decrease is also the largest since April 1997's 0.9% decline. Excluding autos, sales rose 2.3% in January.

Currencies and Commodities

The dollar gave back earlier gains against the yen and the euro. Dollar/yen was down 41 cents to 108.81, while the euro was up, trading at $0.9866 against the dollar from $0.9850 yesterday.

Crude oil for March delivery on the

New York Mercantile Exchange

was up 7 cents to $29.50.

The

Bridge Commodity Research Bureau Index

was up, lately trading at 214.47 from 212.69 yesterday.

Gold for April delivery on the

COMEX

was giving back yesterday's gains, lately traded at $313.7 per ounce, down from $318.7 yesterday.