The Treasury market treaded water, losing a little ground, on light volume ahead of a key speech on Thursday by Fed Chairman Alan Greenspan.

There was no market-moving economic news, and the

Treasury Department's

two announcements, about tomorrow's reverse auction and next week's auction, were more or less in line with expectations. It's fair to say the session was largely just a time-killer.

The benchmark 10-year Treasury note shed 5/32 to 102 12/32, lifting its yield 1.9 basis points to 6.165%. Shorter-maturity issues and the 30-year bond held up somewhat better. The bond lost 1/32 to 104 22/32 as its yield rose fractionally to 5.914%.

At the

Chicago Board of Trade

, the September

Treasury futures contract fell 1/32 to 96 29/32.

"There was no new information and Greenspan is speaking tomorrow,"

Donaldson Lufkin & Jenrette

Treasury market strategist David Ging said, explaining the market's lack of direction.

Tomorrow, the Fed boss heads up to Capitol Hill to deliver his semiannual

Humphrey-Hawkins testimony on the economy and monetary policy. It's always among the most important speeches he gives, and it often triggers big moves in the bond market. According to research by Tony Crescenzi of

BondTalk.com

, since 1993 the front-month bond futures contract has moved an average of 1 1/32 on Humphrey-Hawkins day.

While many people expect Greenspan to do his best to keep the peace tomorrow, failure may be inevitable. As measured by

fed funds futures prices, opinion is evenly split between people who think the

Federal Open Market Committee will hike rates again at its next meeting on Aug. 22, and people who think they won't. Both groups can't be right. Sometime during the next month, the markets are going to have to get repriced.

The momentum is currently on the side of the bears. Earlier in the year, before there was any sign the economy was slowing, an August rate hike looked like a sure thing. Gradually, the monetary policy outlook improved. But optimism topped out with the release of the June

employment report on July 7, when the fed funds futures discounted just a 38% chance of an August hike. As of today, the market is putting the odds at 56%.

"Sentiment is more bearish than not," Ging said. "People are more willing to sell the market than to buy it."

That's also because Treasuries, while they've lost ground in the last week, are still not far off highs that some consider inconsistent even with a 50% chance that the Fed does nothing in August. "Till the selloff on

Friday and

Monday, Treasuries were flagrantly overpriced," said Jim Kochan, senior bond strategist at

Robert W. Baird

in Milwaukee. "So it's going to be hard to rally Treasuries unless we get some very weak economic numbers, the stock market takes a serious dive, or Greenspan says something very encouraging, along the lines of 'All's well and we may not need to tighten again' -- which I think he'll go out of his way to avoid doing."

In Treasury market news today, the Treasury Department announced, as expected, that next Wednesday's monthly two-year note auction will offer $10 billion of securities, and that tomorrow's buyback operation will target $1.5 billion of 30-year bonds issued between February 1991 and August 1993. For the buyback, $2 billion had been expected, but the smaller quantity did not hurt prices.

Economic Indicators

In economic news, the

trade deficit

expanded to a record $31.04 billion in May from $30.50 billion in April, as exports fell 1% while imports fell only 0.3%. The larger-than expected trade deficit will depress the second-quarter

GDP growth rate, and the slowing rate of import growth (18.3%, down from a March peak of 23.0%) is consistent with the idea that consumer spending is slowing down. But, as a relatively old piece of news, its market impact was muted.

The

Housing Market Index

edged up to 58 in July from 57 in June.

And the weekly

Mortgage Applications Survey

detected increases in both refinancing and new mortgage activity. The Refinancing Index rose to 371.9 from a revised 335.4, while the Purchase Index rose to 331.2 from a revised 298.0.

Currency and Commodities

The dollar rose against the yen and fell against the euro. It lately was worth 108.26 yen, up from 108.13. The euro was worth $0.9242, up from $0.9240. For more on currencies, see

TSC's

Currencies column.

Crude oil for August delivery at the

New York Mercantile Exchange

fell to $31.30 a barrel from $31.94.

The

Bridge Commodity Research Bureau Index

fell to 223.52 from 225.34.

Gold for August delivery at the

Comex

fell to $279.60 an ounce from $283.10.