Bonds Finish the Year in Typically Lousy Fashion

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It's over.

What will go down as one of the worst years in recent memory for the Treasury market mercifully ended today in characteristic fashion -- with another selloff. Today's action was certainly exaggerated by painfully thin volume, but the market still managed to sell enough to leave bond yields right near their worst levels of the year.

"Which is probably fitting, since it's been going up since the first day of the year," said Maryann Hurley, vice president at

D.A. Davidson

in Seattle, who for some reason was in the office today.

"We saw a low in yield and a high in prices in early January, and since then, it's been 'Katie, bar the door,'" Hurley said.

The stock market finished the year on a high note -- in fact, just about every major index finished at record highs today -- the bond yields are worse than they have been in over two years. Lately the 30-year Treasury bond was down 19/32 to 95 12/32 in a thin session, putting the yield at 6.477%, just off the year's high of 6.487%.

For the record, 1999 ended as it began, with a selloff on light volume. On Jan. 4, 1999, the Treasury bond's yield rose 6 basis points to 5.16%, more than 130 basis points and three rate hikes ago. Volume that day was 30% less than the usual. The pattern held for all of 1999.

Today's selloff may not mean a whole lot due to thin trading, but it still reflects fear of more Fed rate hikes and continued strength in the economy. The fed funds futures traded on the

Chicago Board of Trade

is fully pricing in a Feb. 2 rate hike to 5.75% from 5.5%, and the market is already fully factoring in a March 21 hike to 6%.

"The bond market is worried, but there's no volume, so you have to take the degree of losses with a certain grain of salt, so to speak," Hurley said.

The expected Y2K flight-to-safety rally that most expected in December never materialized for the bond market. The markets expected Y2K to be a nonevent, and no one felt the need to abandon risky investments. As many people are witnessing through televised celebrations around the globe, that's what's happening.

Next week, the market faces the

National Association of Purchasing Management's

manufacturing index on Monday and the December

employment report

, due out Friday.

The NAPM report, an important gauge of nationwide manufacturing activity, is expected to drop to 56.1 in December from 56.2 in November, according to


. A reading above 50 indicates expansion in the manufacturing sector.

Economists are looking for

nonfarm payrolls

to rise by 224,000 in December, and for the

unemployment rate

to remain at 4.1%.