Bond prices rose modestly as oil took a big fall on suggestions that the U.S. government might release stocks from its Strategic Petroleum Reserve in an effort to coax prices down from 10-year highs.

With no major economic data to consider this week, bond traders have focused chiefly on oil. The effect on the bond market has been rising long-term yields (falling long-term bond prices) when oil is going up and falling long-term yields when oil is going down. That continued today.

The logic of the trade is this: Higher oil prices are a double threat. They threaten to lead to higher inflation overall, which makes bond investors demand higher long-term interest rates. And they put the brakes on economic growth, which keeps short-term rates stable, since short-term rates are contingent upon monetary policy, and amid slowing growth the

Fed is unlikely to hike the

fed funds rate.

The benchmark 10-year

Treasury note gained 8/32 to 99 3/32, dropping its yield 3.4 basis points to 5.871%. Shorter-maturity yields eased by similar degrees.

The 30-year

Treasury bond rose 13/32 to 104 14/32, lowering its yield 2.8 basis points to 5.930%.

At the

Chicago Board of Trade

, the December

Treasury futures contract added 15/32 to 98 3/32.

Oil was the leading influence on bond prices once again today. (Congressional

testimony by Fed Chairman

Alan Greenspan did not address the economy or monetary policy.) "At every opportunity the bond market reacted very positively to everything about oil," said Gemma Wright, director of market research at

Barclays Capital

.

But the market was also affected by the Treasury Department's latest

buyback, in which it bought $1.5 billion of 30-year bonds issued between 1987 and 1991,

Merrill Lynch

government bond strategist Jerry Lucas said.

Normally, Treasury prices rise prior to the 11 a.m. buyback offering deadline, as dealers cover short positions in Treasury futures taken to hedge their inventories of bonds they expect to sell to the government, Lucas exaplined. But today, the market was weak early in the session, which discouraged some dealers from covering their shorts. "They saw prices going down and thought they could buy them back cheaper afterwards," he said.

They were wrong. Prices stopped falling at the offering deadline, leaving those dealers to cover their short positions as prices were rising. "Dealers who covered their shorts ahead of time were the lucky ones," Lucas said.

Economic Indicators

The

Philadelphia Fed Index

(

definition |

TheStreet Recommends

chart |

source

) fell to 8.2 in September from 14.1 in August, indicating slower growth in the manufacturing sector.

The weekly count of

initial jobless claims

(

definition |

chart |

source

) fell to 308,000 from 326,000, and the four-week average fell to 315,750 from 319,000.

The

federal budget

(

definition |

chart |

source

) report for August, the penultimate month of the fiscal year, showed that the government ran a deficit of $10.4 billion, compared to $2.8 billion in August 1999. But, for the fiscal year to date, government receipts have exceeded outlays by $170.8 billion, compared to $66.3 billion through the first 11 months of last year.

Currency and Commodities

The dollar rose against the yen and fell against the euro. It lately was worth 106.62 yen, up from 105.56. The euro was worth $0.8578, from $0.8490. For more on currencies, see

TSC's

Currencies column.

Crude oil for November delivery at the

New York Mercantile Exchange

slumped to $34.00 a barrel from $35.24.

The

Bridge Commodity Research Bureau Index

fell to 226.73 from 226.98.

Gold for December delivery at the

Comex

rose to $273.50 from $272.50.