Bonds Breeze Their Way Through an Unchanged Day

The sharp selloff in stocks lent some support to Treasuries.
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Bonds ended their session mixed today, on very low volume. Treasuries capitalized on the stock market's weakness and put together a decent gain in the early afternoon, only to lose most of those gains at the end of the session.

Lately the 30-year Treasury bond was up 4/32 to trade at 92 25/32. The yield was steady at 5.76%.

Today was a perfect example of trading dominated by asset allocators. Investors in the morning shifted funds into last week's whipping boy, corporate bonds, and in the afternoon others moved into Treasury bonds when the

S&P 500

hit its midday low.

When the S&P fell to 1309 around noon, the long bond's yield fell 2 basis points to 5.74%. The 500-stock index finished down 23.64 to 1306.65, but that further late erosion did nothing for bonds.

"It's very slow -- the only significant trade was when the S&P broke through 1320" around 11:35 a.m. EDT, said John Blough, senior fixed income strategist at

Fahnestock

. "Then, there was a bid to the bonds." Blough said 1300 on the index would have been supportive for bonds, "but we didn't get to 1300, and bonds traded off for the rest of the day."

Bonds gave up the gains when the S&P came back, and even though the index hit new lows, it was just as the Chicago bond futures closed, so it didn't impact the Treasury market.

The strongest maturity in the bond market today was the 10-year note, lately up 3/32 to yield 5.48%. The 10-year sector reacted positively to more weakness in emerging markets when Latin American stocks tumbled. Brazil's

Bovespa

fell 600 points, or 5%, today, on news that the country's foreign reserves fell $37 million to $44.6 billion Friday. The real fell 1.4% to 1.72.

The 30-year bond didn't join the party because the 5.75% level is considered a barrier in the current environment. Until there are enough economic releases to refute the

Fed's

decision to adopt a bias toward raising interest rates, gains will be limited, analysts said. This is also true of the two-year sector, where 5.25% is viewed as a psychological ceiling. The two-year note was lately up 1/32, yielding 5.26%.

"We need a little more

news to break through here," said Josh Stiles, senior bond strategist at

IDEAglobal.com

.

The market's not going to get it this week, at least not any news that directly comments on the inflation outlook. This week's most important economic releases include Wednesday's

durable goods

report for April and the Chicago

Purchasing Managers Index

, released Friday. There were no releases today.

Fixed-income markets are also going to have to sift through a multitude of supply, including Wednesday's sale of $15 billion in two-year notes.

Freddie Mac

(FRE)

plans on sell another $1 billion in notes either tomorrow or Wednesday, while

TRW

(TRW)

, a defense contractor, will sell at least $3 billion later this week. Malaysia is expected to sell $2 billion in bonds within the next couple of weeks.

GovPX

reported volume down 22% when compared to the average second-quarter Monday. Just $38.6 billion in securities changed hands by 3 p.m. EDT.