Bonds Forge Ahead, Trample Equities - TheStreet

Thanks to another walloping in the equity market, Treasuries stormed ahead, with most parts of the yield curve posting impressive gains in a reasonably light session. A late rebound in stocks eroded some of the gains in Treasuries, but bonds still made up for yesterday's losses.

The market's been doing a two-step with the stock market for about a week now. Equities have faltered since

Alan Greenspan

first delivered his

Humphrey-Hawkins

testimony Feb. 17, improving the fortunes of the bond market. The

Fed

seems hellbent on slowing the economy to head off inflation, and with officials increasingly linking consumer-spending fortunes to gains in equities, the stock market's been slumping.

A slowdown in the economy would be a positive for the bond market, as it would almost certainly mean inflation had been contained, and the Fed would remove its foot from the brakes (some would suggest putting it in its mouth). Looking at today's

durable goods

report, though, the slowdown isn't imminent. Oh, durables fell 1.3% in January, but non-defense capital goods orders, excluding aircraft, seen as a good barometer of manufacturing strength, rose 7.4%.

The ever-resilient economy has kept a lid on this rally, no matter how much of a sucking chest wound the

Dow

resembles. The 10-year note, at one point up 21/32, finished up 15/32 to 101 1/32 today, dropping the yield 5.2 basis points to 6.358%. The two-year note ended the day up 5/32 to 99 31/32, yielding 6.516%. The 30-year bond, formerly a benchmark, now trades more like a

drunk schitzo. Up 26/32 at one point, the bond was lately down 4/32 to 101 18/32, boosting the yield 1.1 basis points to 6.135%.

"We've returned to being held hostage by the stock market," said Maryann Hurley, vice president in trading at

D.A. Davidson

. "But Greenspan's comments indicate there are more rate rises to come, and it's certainly going to put an upside on any price improvement."

Strategists believe the 10-year note, which has rallied 21 basis points in the last week, is running into resistance at these levels. The market's certainly factored in a rate hike of 25 basis points at the March 21

Federal Open Market Committee

meeting, but the threat of more hikes limits the potential rally. The recent trend has confirmed this -- the 10-year fell yesterday after a Tuesday rally, and Larry Berman, fixed-income strategist at

CIBC World Markets

, expects the note to trade in a range as the market awaits important economic news beginning next week.

"Either the market breaks out and continues to rally or it fails and consolidates, and I think it consolidates for the next week or two," Berman said. "We've already rallied pretty good here."

That doesn't account for the bond, which, due to expectations for severely diminished supply, has traded more like a commodity for more than a month now. The 30-year has outrun the rest of the market during this rally, but after forging ahead early, was tripped up late in the day. Mark Sauvigne, government bond trader at

Chase Securities

, had a typically blase explanation for the action.

"The bond has entered a world of its own, and it trades thinly," said Sauvigne. "Just like when there are days with no sellers, there are other days where nobody wants to buy them."

The March bond futures contract, traded on the

Chicago Board of Trade

, closed up 10/32 to 95 16/32.

Economic Indicators

This morning's figure was in line with expectations, so despite strength in the underlying components, the bond market slapped the report aside like a pesky mosquito. The 1.3% decrease comes after an upwardly revised 6.3% increase in December, the

Commerce Department

said this morning. Economists polled by

Reuters

were looking for a 1.4% decline. Excluding transportation orders, durable orders fell 0.5% compared with December's 1.5% increase.

The figures are volatile on a month-to-month basis, but the strength in underlying components can't be denied. The 7.5% increase in non-defense capital goods orders, excluding aircraft (because ordering a few planes can skew the data), follows a 4.7% increase in December. Shipments increased 8.3%, the largest increase on record, the Commerce Department said. Industrial machinery orders rose 12.3% in January, the largest increase since February 1985.

On the other hand, orders for electronic and electrical equipment fell 13.2%. Transportation orders were down 3.6%.

Initial jobless claims

fell to 278,000 last week compared with a revised 285,000 the previous week. The four-week, moving average rose to 286,500 from the previous week's revised figure of 283,500. Economists had expected claims to rise to 286,000, according to

Reuters

.

The

Conference Board's

Help-Wanted Index

rose to 89 in January from 86 in December.

Tomorrow morning, the market gets the Commerce Department's first revision to fourth-quarter

GDP

. A huge revision is expected to a 6.4% rate of growth from an initial estimate of 5.8%.

Currencies and Commodities

So much for parity. The euro breached the hard deck today, lately trading at $0.9930 from $1.0029 yesterday. Dollar/yen was lower, lately at 111.12, down from yesterday's 111.23 close.

Crude oil for April delivery on the

New York Mercantile Exchange

surpassed the $30 a barrel mark today but closed at $29.97, up from yesterday's $29.39 close.

The

Bridge Commodity Research Bureau Index

fell to 210.30 from 211.87 yesterday.

Gold for April delivery on the

COMEX

closed at $300.9 per ounce, down from $302.4 yesterday.