Bond Market Struggles to Escape Trading Range, Without Success

A mixed housing starts report and a rampant stock market are keeping pressure on bonds.
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A dearth of good news is leaving the bond market treading molasses today, unable to rebound from

yesterday's sharp selloff, which sent yields soaring toward annual highs.

Bonds made modest advances shortly after release of

housing starts

data, but gave back those gains soon enough. The 30-year Treasury was lately down 3/32 to 96 12/32, putting the yield at 6.40%.

The

Census Bureau

released figures showing housing starts at 1.6 million in November, down 2.3% from a revised 1.637 million in October. But complicating those data, which seem to confirm the recent trend toward easing in starts, were building permits, which rose to 1.614 million from October's revised 1.594 million. That jump could indicate an upturn in future housing activity. (

TheStreet.com/NYTimes.com

covered the housing starts data in a

story this morning.)

Treasuries have come under pressure from a number of directions: Europe, where the bond market has been unable to stage a meaningful rally after yesterday's declines from a stronger-than-expected German business confidence survey; the March bond futures contract, which suffered a technical failure at key resistance of 92 8/32, where it broke down yesterday. There was also word that a large seller was depressing the 10-year note, which was lately down 2/32 to 97 24/32, yielding 6.31%.

Absent positive catalysts, the bond market is left to muse over the implications of the economy's still-rampant growth rate, and look with wonder at the stock market.

"This move in stocks is still a cause of concern in bonds," said Tony Crescenzi, chief bond market strategist at

Miller Tabak

. "Basically, it says that the only mechanism by which the economy will slow is the bond market, and that means higher interest rates."

With Y2K and the attendant liquidity concerns just around the corner, no one expects the

Fed

to raise interest rates when it meets on Tuesday. But market sentiment over the direction of rates next year is quite another story. The latest

Reuters

poll shows 20 of 30 primary dealers of government debt expecting a move toward a tightening bias. And the same number of dealers are forecasting a hike at the Fed's next meeting on Feb. 2.

Meanwhile, the

fed funds futures contract on the

Chicago Board of Trade was pricing in a 98.81% chance of a rate hike in February. That would push the funds rate to 5.75%.

The economic calendar looks pretty sparse from here on. "Next Thursday's durable goods are the next big number," Crescenzi said. "But the major news doesn't begin until next year.

"This time of year," he continued, "I always tell people to throw their calendar out the window anyway. It's more important to follow the anecdotal evidence on what's happening with holiday shopping. Talk of strong spending has been a key factor in bond trading the last couple weeks."