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Bond prices fell, but not nearly as much as they might have been expected to.

Two key economic reports, on consumer spending and wholesale prices, were significantly stronger than expected -- factors that ought to have prompted investors to demand significantly lower bond prices and higher yields.

And the big rebound in stock prices might also have prompted selling of Treasuries, since bond investors lately have been looking at the stock market as an indicator of future economic activity and growth.

The fact that Treasury prices fell only modestly reflected enduring concern about war and terrorism in the Middle East, since any kind of international strife normally creates demand for safe, liquid U.S. government bonds, bond market professionals said. It also reflected the view that the stock-market bounce was an interruption in the downward trend, and not a reversal of it, they said.

A retreat by oil prices further soothed the Treasury market, the 30-year bond in particular, since it is most sensitive to changing inflation expectations.

The benchmark 10-year

Treasury note fell 2/32 to 100 4/32, lifting its yield a fraction of a basis point to 5.732%. Shorter-maturity issues underperformed, their yields rising by 3 to 6 basis points.

The 30-year

Treasury bond gained 4/32 to 106 6/32, trimming its yield a fraction of a basis point to 5.809%.

At the

Chicago Board of Trade

, the December

Treasury futures contract was unchanged at 99 16/32.

The economic news was indisputably negative for the bond market, but perhaps not quite as negative as it appeared.

Retail sales increased 0.9% in September, the largest gain since February, and 0.7% excluding autos. Economists polled by


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had forecast gains of 0.6% overall and 0.5% excluding autos. The news suggests that consumer spending, the primary driver of economic growth, continues to run at a very strong pace.

But the July and August increases in retail sales were revised down slightly, making the September gain somewhat less threatening. At the same time, the September gain in core sales was skewed higher by a 2.1% increase in gas station sales due to rising gas prices.

Meanwhile, the

Producer Price Index also rose 0.9% in September, the largest gain since February. Oil prices, which rose 3.7%, were largely responsible. The core PPI, which excludes food and energy prices, gained 0.3%. But that gain too was larger than expected. On average, economists had forecast the PPI to rise 0.5% overall and 0.1% excluding food and energy.

The report fans fears that rising oil prices are leading to a faster rate of inflation overall. But here too, the core increase was skewed higher by a large increase in a single category, in this case car and truck prices, which rose 1.4% and 1.5%.

"I would've thought the bond market would've gotten its teeth torn out on the numbers,"

Zions First National Bank

manager of electronic trading Gib Clark said, referring to the PPI.

Perhaps it didn't, he said, because bond investors are anticipating more trouble ahead for the stock market, which should boost demand for bonds. Today's move notwithstanding, Clark said, "people really don't think the stock market's going to turn around."

The drop in oil prices protected the longest-maturity Treasuries in particular,

Stone & McCarthy Research Associates

analyst John Canavan said, even though "given the extent of the recent gains

by oil it's not much of a pullback."

The possibility of more warfare and terrorism in the Middle East also made people reluctant to sell Treasuries, Canavan said. "While the

economic numbers are more of a longer-term issue, traders were coming into this morning concerned with oil, the Middle East and stocks, and were unwilling to react to the data very much."

Still, at the end of the day the minor reaction to the data remained difficult for some to understand. "There's real support in the bond market when stocks get hit, but while that makes for easier trading it doesn't reflect the fundamentals," said Todd Finkelstein, director of fixed income at


in Boston.

"The Fed's next move is a tightening, though not an imminent one," Finkelstein said. "The economy is slowing, but it's not going to hell in a handbasket. The Fed's not going to ease, especially with numbers like we saw today."

Economic Indicators

In other economic news, the

Consumer Sentiment Index


definition |

chart ) eased to a preliminary 106.4 in October from 106.8 in September.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 107.81 yen, up from 107.69. The euro was worth $0.8558, down from $0.8622. For more on currencies, see


Currencies column.

Crude oil for November delivery at the

New York Mercantile Exchange

fell to $34.95 a barrel from $36.06.


Bridge Commodity Research Bureau Index

fell to 230.85 from 233.45.

Gold for December delivery at the


fell to $274.70 from $278.80.