Bonds Retreat From Three-Day Rally

Europe's lousy day is weighing down the U.S. bond market.
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For now, the bond market's three-day rally looks like its about over. A poor performance in the European bond markets has knocked down the Treasury market this morning. Since there's little conviction by dealers to buy bonds, one kick has been enough to push the market down.

Strategists also said that hedging related to impending corporate supply was weighing on Treasuries this morning. The 30-year bond was lately down 12/32, to 98 19/32. The yield tacked on 2 basis points to 6.23%.

"This week is mostly technical trading, and even with the

Producer Price Index

due out Friday, I don't think the data are consequential," said Tony Crescenzi, chief bond market strategist at

Miller Tabak

. After a three-day rally, "the market is neutral now after being oversold."

European bond yields rose overnight after Germany reported that industrial production rose 1.7% in October, a day after two other strong economic reports in that country. Germany's economy has been struggling in comparison to other eurozone countries, so these figures awakened the market's fear that inflation might pick up.

The yield on 10-year German Bunds (their Treasury bond) rose overnight to 5.07% from 5%. The yield on 10-year British Gilts climbed to 5.29% from 5.24%.

Procter & Gamble

(PG) - Get Report

sold $1 billion in five-year notes today. Plus,

Freddie Mac

(FRE)

is slated to sell $3 billion in previously issued 10-year notes (also known as a reopening) tomorrow. These offerings crowd out Treasuries at times, because investors like these higher-yielding, relatively low-risk bonds.

Today's only significant news release will be at 2 p.m., when the Fed releases its final

Beige Book

, an anecdotal account of nationwide economic conditions, of the year. The Fed's not expected to touch interest rates at the Dec. 21

Federal Open Market Committee

meeting, so there's little anticipation for this report.

However, the most

recent Beige Book reported wage pressures in five of the 12 regional districts, so it will be significant if the report discusses wage pressures in more than half of the districts this time.