The Treasury market rallied today with the shortest-maturity issues leading the charge, in what market analysts said was primarily a reaction to the latest stock-market selloff.

The session was marked by the morning release of the

international trade report, the pricing of $5 billion of bonds by

WorldCom

(WCOM)

and expiration of June options on Treasury futures at the

Chicago Board of Trade

. But none of those things had a clear impact on Treasury prices, market watchers said.

Instead, the stock selloff sent money into the Treasury market, specifically the shortest-maturity issues, which are the least volatile and therefore the safest place to park assets. Bond investors also have been favoring the short end of the Treasury curve lately, because that is where they think they will suffer the least in the event the

Fed continues to hike the

fed funds rate aggressively.

"There's a huge amount of interest in the front end of the market," said Bill Kirby, head of government bond trading at

Prudential Securities

. "With the Fed tightening, there's a real defensive approach by a lot of people, so we're seeing the front end trading real well."

In addition, Kirby noted, the second half of May will see an unusually large quantity of money flow into the Treasury market from maturing issues and coupon payments. That $67 billion flow should continue to support short-term issues in particular, he said.

The benchmark 10-year Treasury note gained 10/32 to 100, dropping its yield 4.4 basis points to 6.498%. Shorter-maturity issues fared even better. The five-year note added 8/32 to 100 4/32, lowering its yield 6.2 basis points to 6.718%. And the two-year note rose 4/32 to 99 4/32, cutting its yield 6 basis points to 6.861%.

Meanwhile, the 30-year Treasury bond gained 9/32 to 100 18/32, trimming its yield 2 basis points to 6.208%.

At the

Chicago Board of Trade

, the June

Treasury futures contract rose 7/32 to 93 9/32.

"We've one-for-one tracked what stocks are doing," said Avram Altaras, Treasury market strategist at

Bear Stearns

.

It's also possible, Altaras said, that short-maturity issues outperformed long ones because traders were unwinding a trade in which they were short the short-term issues and long the long-term ones. That trade was profitable in the immediate aftermath of the Fed's rate hike on Tuesday. But the stock market is the likelier explanation for today's move, the strategist said, because "I don't think people would have picked a quiet Friday to take off flattening trades." Only $22.9 billion of Treasuries changed hands today, 17.7% less than average for a Friday over the last month.

There is also a fundamental aspect to the rally in short-term Treasuries in reaction to the stock market's woes,

Barclays Capital

senior economist Henry Willmore said. The bond and fed funds futures markets have fully discounted a 25 basis-point hike in the fed funds rate in June, and partially discounted a 50-basis-point hike. But the stock-market selloff makes it that much less likely that the Fed will raise the fed funds rate by even 25 basis points in June, to say nothing of 50, Willmore said. "A few days of 100-point declines in the

Nasdaq

-- and today it's not just the

Nasdaq

-- calls into question any possibility of 50. Even 25 basis points is an open question in an environment when financial markets are tightening for the Fed."

Economic Indicators

The international trade report showed that the trade deficit grew to a record $30.176 billion in March, from $28.715 billion in February. Exports grew 2.9%, but imports grew faster -- 3.4%.

Currency and Commodities

The dollar fell against the yen and the euro. It lately was worth 106.95 yen, down from 108.69. The euro was worth $0.8972, up from $0.8944. For more on currencies, please take a look at

TSC's

Currencies column.

Crude oil for June delivery at the

New York Mercantile Exchange

retreated to $30 a barrel from $30.33.

The

Bridge Commodity Research Bureau Index

climbed to a two-year high of 223.35 from 222.01.

Gold for June delivery at the

Comex

rose to $274.60 an ounce from $273.70.