Bonds, Lacking Catalyst, Endure Directionless Session

With little to drive Treasuries, traders focus on other fixed-income areas.
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In blackjack terms, today is what's called a push.

When the market is caught in a trading range, it needs a catalyst to induce activity. The

Dow

fell all of 37 points; oil was down 10 cents,

Fed

officials were opaque and there were no economic releases.

Small wonder the 30-year Treasury bond is up a mere 5/32 to trade at 95 1/32. The yield fell to 5.60%. Bonds were trading better in the morning, when it appeared stocks might falter, but it was a subdued afternoon as investors devoted their attention to other fixed-income markets.

"It's exceedingly quiet," said Gib Clark, manager of government trading at

Zions First National Bank

in Jersey City, N.J. "We've all gotten over the August-to-October period, and now everyone is piling into all the other products with a better spread off Treasuries."

Trading desks were also understaffed, with many participants attending the

Bond Market Association's

conference in San Francisco. Even at full complement, it's hard to imagine a different outcome for this session. Tracker

GovPX

reported volume down 24% when compared with the average second quarter Friday, as $42.7 billion of bonds changed hands.

During this week, a considerable amount of Treasury trading was a response to action in the stock market, according to analysts. It was a bit of a one-sided battle. Treasuries rallied Monday when stocks were down, and since then were beaten down as the broad equity markets surged through the rest of the week.

But today, having a bit of a reprieve, Treasury bonds couldn't find a reason to rally, not with better value to be found in other fixed-income markets. Most of the flows were related to dealers hedging against new supply, as well as the expiration of certain futures options. Dealer-related hedging is a constant in Treasury trading, but on a quiet, range-bound day, the gyrations it may cause become more noticeable.

"Treasuries are the whipping boy between the syndicate desks and swap desks," said Stephen Saslow, executive managing director at

HSBC Securities

. "We're range-bound, the higher-yielding spread product has outperformed and I don't really see any real reason for those views to change."

Freddie Mac

(FRE)

sold $3 billion in new bonds today, and

Ahold Finance

, a unit of

Royal Ahold

, also sold $1 billion, divided equally between 30-year bonds and 10-year notes. Investors are already looking ahead to next week, when

Sprint Capital

, a unit of

Sprint

(FON)

, will sell $3 billion in securities.

The market will also be focused on economic releases and remarks from Fed officials. Fed Governor

Edward Gramlich

told reporters today he agreed with Governor

Laurence Meyer's

view that Y2K-related issues could force the Fed to raise rates later this year. Of the Fed governors, Meyer's been the most hawkish and defiant lately, but the market will need to hear similar tones from Chairman

Alan Greenspan

to believe a rate hike is in the offing.

"The key question ahead is whether the Fed at some stage loses patience with the slowdown forecast and feels the price pressures are here to stay," said Saslow. "We know oil is up, we know wage pressures

aren't

up."

Greenspan will testify next week on financial services modernization. He is also scheduled to speak on floating currencies, so it's possible that neither speech is a market-mover.

The

Employment Cost Index

for the first quarter will be released Thursday. It's expected to rise 0.8%. First-quarter

gross domestic product

, due for release Friday, is forecast at 3.2%.