Bonds Rebound From Three Days of Selling

Trading has been in a tight range amid a slew of economic data.
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The Treasury market has stuck to a tight trading range this morning. Economic data were providing most of the tug of war between sellers and buyers, but in contrast to the last five volatile sessions, today's gyrations were much gentler.

The market reacted positively to downward revisions to second-quarter

GDP

growth and that report's price inflation indicator, but frowned on the 10 a.m. EDT releases of

new home sales

and the price component of the

Chicago purchasing managers' index

.

That reaction proved to be fleeting, as Treasuries have turned back into positive territory. Lately the 30-year Treasury bond was up 12/32 to 100 14/32, dropping the yield 2 basis points to 6.10%.

"Bonds are quiet," said Charlie Reinhard, market strategist at

ABN Amro

. "Tomorrow's

National Association of Purchasing Management

index matters much more than the reports out today, and of course, we have the Oct. 5

Fed

meeting."

The price of oil per barrel dropped to $24.54 today, down 15 cents from yesterday's close. Two sources said today's positive activity was due in part to this decline, as well as a general belief that the last three days of selling brought the market to the bottom of its current range.

A downward revision to business investment shaved off 0.2% in growth in the second quarter, bringing GDP growth for the quarter down to 1.6% from 1.8%. The implicit price deflator declined to 1.3% from 1.5%. Today's release is the third and last adjustment to this figure. Businesses let inventories run down during the second quarter but rebuilt those inventories in the third quarter, according to a comment from

Barclays Capital

, which is estimating third-quarter growth at 4.5%.

Since the final revision is a two-month-old number, it generally gets ignored by traders. But Reinhard said it "allowed bonds to firm a little bit, but when the 10 a.m. numbers came out, they were less appealing for the market."

The Chicago purchasing managers' index, a survey of Midwest manufacturing conditions, slumped in September, falling to 53.8, down from August's 56.1 and July's 60.5 reading. A number greater than 50 indicates growth in the sector; less than 50 indicates contraction. However, the prices paid component, a measure of what manufacturers are paying for materials, climbed dramatically to 71 from 63.8.

"We've experienced a rebound in non-China Asia economies that's beefing up industrial manufacturing input prices, such as steel, aluminum, and plywood," Reinhard added.

So much for the housing market slowing. Sales of new homes increased on a seasonally adjusted annual basis to 983,000 in August, up from the revised rate of 955,000 in July (originally 980,000). Economists have put forth the theory that consumers are buying homes in anticipation of higher interest rates, believing that the opportunity to lock in low-cost financing is slowly fading. But confidence in the labor market may be playing a greater role.

Initial jobless claims

ticked back up last week to 299,000 after falling to 274,000 the week previous. The four-week moving average rose to 288,250 from a revised 286,000 the previous week.