The Treasury market ought to have had a good day.

A stronger-than-expected

new home sales

report delivered an early blow. But the monthly auction of new two-year notes went well. Oil fell to a

two-month low after


and Mexico announced production hikes. Riskier bonds -- especially agency securities -- got slammed. And the

Nasdaq Composite Index

fell hard.

"It's surprising we're not up more, especially with stocks down so much," said Matthew Kuhns, bond portfolio manager at


, late in the session.

But perhaps because the next two weeks bring key economic releases that are expected to show that the economy continues to grow too fast for the


comfort, most Treasury prices fell.

The benchmark 10-year note shed 1/32 to 102 16/32, lifting its yield a fraction of a basis point to 6.157%. The 30-year bond also fell 1/32 to 103 25/32, raising its yield a fraction of a basis point to 5.977%.

At the

Chicago Board of Trade

, the June

Treasury futures contract fell 1/32 to 96 3/32.

The two-year note auction, at which $12 billion of securities were sold at a yield of 6.58%, produced a healthy bid-to-cover ratio of 2.57, which compares to an average of 2.21 for the 12 most recent two-year auctions. The bid-to-cover ratio compares the amount of securities bid to the amount offered for sale. A high bid-to-cover ratio indicates strong demand.

At the same time, agency securities -- bonds issued by government-sponsored enterprises

Fannie Mae


Freddie Mac


Federal Home Loan Banks

-- took a bit hit today on no real news. Swap spreads, which closely track the difference in yield between agency and Treasury securities, continued to widen, indicating that investors are demanding ever-higher yields on agency securities relative to Treasuries. The 10-year swap spread widened to nearly 127 basis points from 121 on Tuesday. Before last week, the latest peak was 108 basis points, in September 1999.

The agency market has been roiled in the last week by federal government initiatives to re-evaluate the advantages that the government-sponsored enterprises enjoy over other corporate borrowers. Selling of agency securities has typically been accompanied by buying of Treasuries, and that was the case for a while today. But the effect didn't last.

TST Recommends

Perhaps bond investors are concerned about tomorrow's final revision to fourth-quarter


, which some economists think will print above 7% for the first time since 1987. Or about next week's March

employment report

, which is expected to show a big jump in nonfarm payrolls due in part to Census-related hiring.

"We're not very constructive on rates," Kuhns said. "Absent a significant stock market correction, the Fed's going to continue hiking two or three more times." The only reason to want to own bonds, Kuhns said, "is because you're really nervous about owning stocks," which, however, doesn't seem to speak for many people.

Nor should they be, says Ken Mayland, president of

ClearView Economics

. But nor should they steer clear of the bond market. Mayland says the downturn in oil prices means that the growth rate of the

Consumer Price Index

is on the verge of peaking. "As people come to the conclusion that the CPI has maxed out, it has been implications for the fixed-income markets, the equity market and Fed policy." The Fed will hike in May, possibly by 50 basis points instead of the usual 25, Mayland predicts. "But at that point people will start to raise the question, Are we at the end of the period of rising rates?"

Economic Indicators

New home sales edged down 0.5% in February, to 919,000 from 924,000 in January. A pace of 877,400 had been forecast by economists polled by



Compounding the report's bearishness, the January pace was revised up quite sharply from an original estimate of 882,000.

Still, new home sales are down from an all-time high of 995,000 in November 1998.

At the same time, the weekly

Mortgage Applications Survey

detected increases in both refinancing and new mortgage activity. The Refinancing Index rose to 386.6, its highest level in seven weeks, from 346.2, while the Purchase Index rose to 312.2, its highest level since November, from 293.5.

Currency and Commodities

The dollar fell against the yen and gained against the euro. It lately was worth 105.70, down from 105.80. The euro was worth $0.9516, down from $0.9665. For more on currencies, please take a look at



Currency Watch column.

Crude oil for May delivery at the

New York Mercantile Exchange

fell to $26.45 a barrel, the lowest since Jan. 12, from $27.09.


Bridge Commodity Research Bureau Index

fell to 210.98 from 211.90.

Gold for April delivery at the


fell to $278.70 an ounce, a six-month low, from $282.20.