Bonds Gyrate on Thin Volume

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It's up, it's down, it's all over the place. Bonds found some buyers when stocks opened weakly, but traded down as soon as they were up.

The 30-year Treasury bond lately was up 4/32 to 106 22/32, with the yield easing to 5.06%. At its best, the bond was up 11/32. At worst, it was down 5/32.

Expectations as reported by

Reuters

Treasuries were up slightly in a restful morning, but it is expected that the bond market will come under pressure during the next few days in anticipation of the two-year Treasury note auction. Details of the auction will be announced later this afternoon.

"The sentiment out there is that the market remains vulnerable, and dealers don't want the auction supply at these levels," said Ken Logan, managing analyst at

Thomson Global Markets

. The recent steepening of the yield curve has pushed two-year notes down to their current 4% yield. Dealers are going to want a better yield, so they will sell notes in advance of the auction.

Next week brings the announcement of the quarterly refunding, which will include auctions of five-year notes, 10-year bonds and 30-year bonds. "Unless something unexpected happens in the stock market, we're looking for more selling," said Logan.

Treasury bonds are also down in comparison with corporate bonds, an indication that investors have regained some confidence in investment-grade and corporate bonds.

Today's anticipated speeches are after the close:

Treasury

Secretary

Robert Rubin

will speak at 6:30 p.m. and

New York Fed

President

William McDonough

will address the

International Conference of Banking Supervisors

in Australia at 6 p.m. EDT.

Richmond Fed

President

Al Broaddus

, currently a nonvoting member, at noon in Baltimore will address business leaders on the economy.

Housing starts

declined again, and are down from the 1.71 million peak two months ago to a still-robust 1.58 million. The decline in both starts and building permits (down 5%) was attributed to the decline in apartment buildings, a more volatile sector. While housing starts are down two months running, they are still 5% higher than in September 1997.

In addition, the

mortgage application survey

, currently off its highs, was at relatively high levels of 296.9 and 2507 for purchases and refinancings, respectively.