Bonds Slump Anew as Fundamentals Trump Technicals

The morning brought an oversold bounce, but the afternoon brought a weaker dollar and higher commodity prices.
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The Treasury market lost ground again today, giving back an early bounce off yesterday's technically oversold levels as the dollar continued to erode against the yen, commodity prices continued their recent upward burst and carmakers reported strong August sales.

The benchmark 30-year bond ended the day down 8/32 at 100 18/32, lifting its yield a basis point to 6.08%. Shorter-maturity notes were unchanged to a basis point higher in yield.

Today was supposed to have centered on the August

Purchasing Managers' Index

, the

National Association of Purchasing Management's

monthly manufacturing-sector indicator. But it was accidentally released

yesterday.

So while traders kept an eye on the day's developments, those developments were a lot less engaging than they were supposed to have been. And with the August edition of the

employment report

, baddest of the economic indicators, due out Friday morning, traders seem destined to continue to hang back lest the report radically rewrite the odds of another

Fed

rate hike next month.

"We're just waiting around for the employment number," said Michael Andreas, senior vice president at

Advest

in New York. "It's going to determine where we go for the foreseeable future."

Treasuries were able to rally early in the session, with the long bond rising as much as 13/32, mostly because they fared so poorly recently,

Prudential Securities'

co-head of government bond trading Bill Kirby said. "We had sold off a fair amount the last few days," he noted. "Trading has been extremely technical in nature of late. We were a bit oversold this morning and so we were due for a pop."

But as the day wore on, those pesky fundamentals returned to the fore. The dollar experienced another sharp drop against the yen to end the day around 109.07, down from 109.72 yesterday and its lowest close since Jan. 11. A weakening dollar can stoke inflation by making imports more expensive.

Oil prices were reasonably behaved, ending the day down slightly. But commodity prices more broadly continued to romp. The

Bridge/Commodity Research Bureau Index

rose from 199.35 to 200.15, its first close over 200 and its highest close since Nov. 19, 1998. Bob Hafer, managing director at Bridge/CRB, said the latest rise has been "very, very broad based," with all of the index's groups participating in varying degrees. The groups are precious metals, grains, livestock, industrial products and energy.

Pile on today's robust August reports by carmakers --

General Motors

(GM) - Get Report

through August has sold 12% more cars than during the same period in 1998, while

DaimlerChrysler

(DCX)

has sold 7.5% more -- and any remaining impetus for a rally was crushed.

"It's a clear indication of strength in the economy, and that doesn't help," Advest's Andreas said.