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With an assist from expiring options on bond futures, Treasury prices moved smartly higher in a holiday-shortened session, motivated primarily by falling stock prices.

The benchmark 10-year Treasury note ended up 16/32 at 100 2/32, lowering its yield 6.9 basis points to 6.491%, its best close since Feb. 3. The 30-year bond -- which has lost its benchmark status in the last month because the federal government's plans to reduce the supply of long-dated Treasury debt have driven its price up disproportionately -- ended up 30/32 at 101 10/32, dropping its yield 6.8 basis points to 6.153%. At its high for the year on Feb. 3, the bond traded at a yield as low as 6.059% on an intraday basis, and as low as 6.121% on a closing basis.

Treasuries, which except for the bond were little changed early in the session, after the release of the

Consumer Price Index

for January, started to get excited when the major stock prices encountered a fresh bout of selling around midday.

The logic of the trade was precisely the one



Alan Greenspan

outlined in his

Humphrey Hawkins

testimony yesterday: Rapidly rising stock prices are a major reason why the economy is growing at what the Fed sees as a unsustainable pace. So the Fed will continue hiking the

fed funds rate

until stock prices stop rising so rapidly.

"Greenspan told you yesterday that he's going to tighten till the stock market goes down," said Tom Connor, head of government bond trading at


. "If you're a stock owner, you might as well sell now, since it's going to go down eventually. And if you're a bond owner you say, if stocks are going down, he doesn't have to tighten as much."

Still, bond prices might not have risen as much as they did had today not been expiration day for options on the March bond futures contract.

On expiration day, the market tends to move further in the direction in which it is headed than it would on a regular day. People who are short in-the-money call options on bond futures will buy the futures on expiration day, to hedge the risk that they will be assigned a short futures position. Alternatively, they might buy back their call, which has the same effect on the market since the seller would hedge by buying futures. Prior to expiration day, a call-seller would still have hope that the market might turn down, moving the calls out of the money.

Today, for example, as the

Chicago Board of Trade's


10-year note future rose from 94 18/32 to 95 2/32, the

95 calls doubled in price and the 94 calls more than doubled. And as the

March bond future rose from 94 5/32 to 94 28/32, the

94 calls tripled in price.

At the start of the session, which ended at 2 p.m. EST ahead of the long Presidents' Day weekend, the January Consumer Price Index, the broadest measure of inflation, rose 0.2%, a tenth less than the average forecast of economists polled by


. The core CPI, which excludes food and energy prices, also rose 0.2%, in line with the average forecast. The largely in-line results neither increase nor lessen pressure on the


to raise interest rates to cool the economy, and the market reacted accordingly, which is to say, hardly at all.

The overall CPI rose at an annual rate of 2.7% in January, the same as in December. The core CPI rose at a 1.9% rate, the same as in December.

Economic Indicators

Also today, the December

trade report

showed the first narrowing in the trade deficit in four months. It narrowed from November's record $27.1 billion to $25.55 billion, as exports grew 3.2% while imports grew only 1%.


real earnings

grew 0.6%, as the 0.2% rise in the CPI cut into the 0.7% gain in average weekly earnings reported by the January

employment report


The February

Consumer Sentiment Index

fell to 111.2 from the all-time high of 112 it reached in January.

And the

federal budget

report showed that the government ran a $62.2 billion surplus in January, compared to $70.5 billion last January. However the budget is on track to rack up an even bigger surplus in fiscal 2000 than fiscal 1999's $124 billion beauty.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 110.91 yen, up from 110.66 yesterday. The euro lately was worth $0.9849, down from $0.9845 yesterday.

Crude oil for March delivery at the

New York Mercantile Exchange

rose to $29.50 a barrel from $29.46 yesterday.


Bridge Commodity Research Bureau Index

fell to 211.90 from 212.77 yesterday.

Gold for April delivery at the


rose to $307.3 an ounce from $303.80 yesterday.