Bonds Storming Higher as Rate-Hike Worries Fade - TheStreet

Bonds Storming Higher as Rate-Hike Worries Fade

The long bond's yield has reached its lowest point since Oct. 8 as weak home sales help a furious rally.
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Party on, dude.

The Treasury market remains in celebration mode, banking on the prospect that even if the

Fed

hikes interest rates again next month, that hike will be the last one for a long time. (A weak

new home sales

report is helping, too.)

That prospect, the market has ruled, is not inconsistent with Fed Chairman

Alan Greenspan's

cautionary remarks

last night.

The market: Join the discussion on

TSC

Message Boards.

The benchmark 30-year Treasury bond was lately up 25/32 at 99 2/32, trimming its yield 6 basis points to 6.19%, a level it hasn't closed at since Oct. 8. Shorter-maturity note yields were lower by similar amounts.

In a

speech, Greenspan discussed the possibility that productivity growth is not accelerating fast enough to keep the economy from overheating.

But he also discussed the possibility that the rise in market interest rates that has occurred over the last year will do the trick, and that implies that the Fed's job -- if not done -- is close to done, said Dave Connors, managing director at

Credit Suisse First Boston

.

"This is a market that's prepared to accept that the backup in rates so far is eventually going to find its way into the numbers," Connors said. "So even if we get another 25

-basis-point hike in the fed funds rate, we're priced for that, and that's probably going to be it."

Connors thinks the bear market in bonds is "somewhere between 85% and 100% over."

That's by no means a universal view.

"We're of the opinion that there's at least one and possibly several more tightenings in store," said Todd Finkelstein, director of fixed income at

Advest

in Boston. As inflation heats up, he expects the long bond's yield to see at least 6.60% before the bear market ends.

At least part of today's action is technically driven, Finkelstein said. The bond futures contract picked up momentum when it pierced a key resistance level around 112 24/32.

On the economic front this morning, new home sales in September tumbled 12.8% to an 811,000 annual pace, from a revised August pace of 930,000. The

Chicago Purchasing Managers' Index

, which signifies regional manufacturing growth when over 50, rose more than expected to 58.8 in October from 53.8. But its sub-index of prices paid by Midwest manufacturers slipped to 65.4 from 71.0.