Awaiting Key Data, Treasuries Idle

This morning's supportive numbers pale in comparison to the Employment Cost Index and GDP report.
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Treasury prices are little changed this morning, in spite of minor but supportive economic news. The larger focus is not on anything taking place today, but on major economic releases due out later this week -- the

Employment Cost Index

and

GDP

, both for the third quarter, both on Thursday.

The benchmark 30-year bond was lately up 1/32 at 97, its yield unchanged at 6.35%. Shorter-maturity note yields were unchanged to 2 basis points higher on the day so far.

In today's economic news, two weekly retail sales measures -- the

BTM/Schroder Weekly Chain Store Sales Index

and the

Redbook Retail Average

-- continue to detect slowing in the pace of consumer spending, while the monthly

Consumer Confidence Index

declined for the fourth month in a row.

The BTM/Schroder index fell 0.8% for the second week in a row, an unusually large drop, while the Redbook Average's year-on-year growth rate slipped to 4.2%. The Consumer Confidence Index dropped to 130.1 in October, its lowest level since January, from 134.2 in September.

But these reports blanch in comparison to Thursday's reports, which take measure of wage inflation (the ECI) and the economy (GDP) on such a broad scale that if the increases are hotter than expected, the

Fed

might be prompted to respond with another hike in the fed funds rate at its next meeting.

Accordingly, traders are waiting for those reports.

"We've been locked in a fairly narrow trading range for a number of days, and I don't see a break-out either way till we see the employment cost and GDP numbers," said Marcello Frustaci, senior vice president at

Daiwa Securities

.

Negative sentiment is running so high in the bond market that if the ECI is in line with expectations or weaker than expected, Treasuries will rally, some analysts are predicting.

Aubrey G. Lanston

senior economist Bill Quan pointed out that the low unemployment rate, the larger-than-expected increase in average hourly earnings in the September

employment report

, anecdotal evidence of rising benefits costs and generous collective bargaining agreements won by employees of

Boeing

(BA) - Get Report

,

General Motors

(GM) - Get Report

and

Chrysler

(DCX)

have people figuring that "the risk is on the high side." Therefore, "we might see a bit of a rally in the Treasury market if the numbers are in line."

On the other hand, Frustaci said, "We're still in a bear market till something proves otherwise. The Fed is closer to tightening than not." And a stronger-than-expected ECI could be the thing that closes the case for another rate hike. In which case, expect Treasuries to make new lows, he said.