Battered Bonds Improve in Morning

The long bond is off its break-even level, sending the yield down a bit as the dollar gains vs. the yen.
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The bond market is looking a little better this morning, lately bouncing up from a break-even position. The 30-year Treasury bond was up 13/32 to 94 9/32, yielding 5.65%. The June bond contract was also doing better, up 10/32 to trade at 120 13/32.

"There's not a whole lot of momentum," said Bill Hornbarger, fixed-income strategist at

A.G. Edwards

. "People perceive value at these levels, but with all the damage done people are unwilling to step in front of

the selloff, so we're getting a little of an oversold reflex bounce."

Support for the dollar and the Japanese government market, two factors ignored during the last week and a half, enhanced the appeal of Treasury securities this morning. Overnight the 10-year JGB, Japan's benchmark government bond, fell 2.5 basis points to trade at 1.815% after strong demand for a six-year auction quelled fears that there would not be enough demand for rising government supply. The dollar was up 0.70 lately to trade at 120.44 yen.

Participants believe today's rally is going to be contained, as many keep to the sidelines in anticipation of Friday's

employment report

. Today's economic data were actually kind -- sales of

new homes

in January fell to a seasonally adjusted annual rate of 918,000, down from December's adjusted rate of 966,000. Despite a 5% decline in sales, this is still the third-best performance ever.

Bond yields climbed rapidly these last two weeks, without many opportunities for the market to find a supportive level. Now, the expectation is for three days of treading water ahead of Friday's data.

"People are looking for something to set the bottom and move the market, but we don't know what's going to be catalyst here," said Hornbarger. "If

employment comes in on consensus, or a little below that might be the bottom. If we get a number above consensus then we'll have one more capitulation trade and that would be the level that would hold."