Bonds Gain on Light Volume Ahead of Key Data - TheStreet

Treasuries meandered higher today on negligible volume, driven, market participants said, by optimism that economic data due out later this week will confirm that economic growth is slowing.

Bond prices managed to rise, sending intermediate- and long-maturity yields to six-week lows, even though oil rallied sharply, with negative implications for inflation.

Possibly triggering some purchases of Treasuries,

Merrill Lynch

today increased the bond allocation in its model portfolio to 35% from 30%, while cutting commodities back to zero from 5%.

The benchmark 10-year Treasury note added 9/32 to 102 31/32, trimming its yield 3.8 basis points to 6.126%. Shorter-maturity yields fell by like amounts. The 30-year bond gained 7/32 to 105 5/32, dropping its yield 1.5 basis points to 5.881%. And at the

Chicago Board of Trade

, the September

Treasury futures contract added 6/32 to 97 16/32.

On days like today, when volume is paltry because it's a summer Monday with no economic data, experts counsel against reading much into the market's doings. According to tracker

GovPX

, just $13.9 billion of Treasuries changed hands by 3 p.m. EDT, 40.2% less than average for a Monday over the past month.

Having said that, some attributed the interest in Treasuries today to hope that this week's major economic reports -- especially May

retail sales

tomorrow and the May

Consumer Price Index

on Wednesday -- will confirm that consumer spending is slowing and inflation is under control. With that backdrop, people believe, the

Fed can afford not to hike interest rates at its next meeting on June 27-28.

"There's a lot of releases coming out this week, and people's expectations are that they're going to be on the soft side," said Matthew Kuhns, a bond portfolio manager at

Transamerica Investment Management

in Los Angeles. "The market's had a pretty good move and it looks like it's holding in. Greed is overcoming fear in a big way."

The CPI report in particular has the potential to bring more people into the camp that thinks the Fed will stand pat at its next meeting, after having hiked the

fed funds rate by a total of 1.75 percentage points over the last year, said Tony Crescenzi, bond strategist at

Miller Tabak

. Currently, traders of

fed funds futures put the odds of a hike in the rate from 6.50% to 6.75% at 46%, down from 50% on Friday.

Also of interest to bond traders this week is a speech by Fed Chairman

Alan Greenspan tomorrow at 1:10 p.m. They're wondering if he'll tip his hand regarding the likely outcome of the meeting. Greenspan's topic, "Business data analysis," isn't particularly promising. But hope for guidance lives. "This is a perfect opportunity for the Fed Chairman to set out his thinking in the wake of the run of weaker numbers,"

High Frequency Economics

chief U.S. economist Ian Shepherdson told clients in a published comment this morning.

Currency and Commodities

The dollar fell against the yen and gained against the euro. It lately was worth 106.78 yen, down from 106.90. The euro was worth $0.9527, down from $0.9529. For more on currencies, please take a look at

TSC's

Currencies column.

Crude oil for July delivery at the

New York Mercantile Exchange

rose to $31.74 a barrel, nearly a three-month high, from $30.20, on speculation, arising from a Saudi Arabian official's comment, that next week's OPEC meeting might not do enough to ease the shortage that has driven prices up lately.

The

Bridge Commodity Research Bureau Index

fell to 224.51 from 224.99.

Gold for August delivery at the

Comex

rose to $289.10 an ounce from $286.40.