Bonds Benefit From Stock Tumble, but Philly Fed Holds 'Em In Check

The Philly Fed survey has traders worried about inflation, even as stocks crumble. Meanwhile, the market awaits a $5 billion deal from Ford.
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Treasury bonds got a boost in the early going, but the

Philadelphia Fed's

manufacturing index has taken some of the steam out of the market. Heading into the afternoon, bonds are still higher, benefiting from the equity market's disastrous performance this morning.

Also, investors are looking forward to a $5 billion global bond deal from

Ford

(F) - Get Report

, expected to be sold later today.

Overall, the Philly Fed index fell to 6.9 in October from 17.6 in September. However, the prices paid component, which tracks what producers are paying for materials, showed its greatest increase in four years, rising to 22.5 from 11.8.

Lately the 30-year Treasury bond was up 5/32 to 97 11/32, dropping the yield 2 basis points to 6.32%.

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Treasuries were performing well, with the long bond up as much as half a point in the early going, after the announcement that

European Central Bank

did not raise rates at its meeting earlier today. Some predict the body will raise rates at its next meeting Nov. 4. The ECB's refinancing rate is currently 2.5%.

The bond market sustained that strength for the next hour and a half, until the 10 a.m. release of the Philly Fed report. Many of the components in this volatile survey rose, despite the weakness in the headline figure. The strength in the prices paid component could be due to rising energy prices, surmised Mike Cloherty, senior market economist at

Credit Suisse First Boston

, but it still stokes the market's fear of inflation creeping into the economy.

"It's the highest

jump since the fourth quarter of 1995," said Cloherty. "The market right now is pretty sensitive to any indications that prices could be heading higher."

Also keeping bonds above sea level is the equity market, which has been pummeled from the opening bell.

IBM

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warned that earnings for at least the next two quarters will be effected by Y2K issues, and that's got the

Dow

down more than 130 points.

Initial jobless claims

rose 9,000 to 298,000 for the week ended Oct. 16. The four-week, moving average rose to 300,750 from 294,750.

Ford is expected to sell $5 billion in debt this afternoon, according to sources. The company sold $8.6 billion in total debt earlier in July, the largest corporate debt offering in history.