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Even Good Inflation News Doesn't Help Treasuries

Bonds are pacing in circles as the equity market's strength weighs on fixed-income.

A positive inflationary report didn't have a major effect on the bond market this morning, which continued its blind tango with equities. News of two proposed mergers strengthened equity futures, holding back the bond market.


Employment Cost Index

-- rumored to have been released early by the

technological wizards at the

Bureau of Labor Statistics

-- rose only 0.7% in the fourth quarter. This is a decrease when compared to the 3rd quarter figure of 1% and the lowest increase since the first quarter. The ECI measures the rise in wages, salaries and compensation costs and is viewed as a key inflationary indicator. As the job market has tightened, economists have figured on increases in the ECI. They forecast a 0.9% increase for this report.


senior economist John Lonski, admittedly puzzled, said the labor market "may be operating more efficiently in a way, but it's not tight enough that we have workers easily leaving positions for a higher-paying position elsewhere."

Coupled with the rumor that the ECI had been let out of the bag early, various news organizations reported the rumor that the figure would rise 1.2%. This dampened the markets' spirits in the morning. Bonds rose when the ECI was released, but continued to react against the stock market.

Stocks retreated from their strong opening, and the 30-year Treasury bond was only down 1/32 to trade at 101 27/32. The yield rose to 5.15%. Many factors are still in the bond market's favor: the


index, which hit an all-time low of 187.52 two days ago, is currently trading at 189. Dollar/yen was up 0.46 lately to 116.11.

Avram Altaras, managing director at

Bear Stearns

, said it is difficult to make inferences about the market's pattern when

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volume is down 20% as of 10 a.m. EST.

"Maybe the market will make a concession for the auctions," he said, referring to the quarterly refunding, which will take place in two weeks. "Other than that, unless there's a problem in Asia or South America, we're treading water."

But Lonski believes the lack of spark in the Treasury market is in part due to skepticism over more strong, inflation-causing data, such as today's

durable goods

report and next week's

unemployment report


purchasing managers index


"Bond yields are where they are now because of pronounced sluggishness overseas," he said.

Orders for manufactured durable goods rose 1.9%, the second strong report in a row. Excluding transportation, December orders increased 2.8%, and new orders rose 3.4% in 1998, according to the

Census Bureau


Expectations as reported by