Still Buzzed from Friday, Bonds Drift Higher

Look for low-volume rallies to continue to push bond prices higher between now and year-end, an analyst says.
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Bond prices are a bit higher this morning on little volume and less news. The action is chiefly an extension of

Friday's rally, which started when a better-than-expected

employment report

consoled a market that had spent most of the previous two weeks giving back the gains it had made during the first half of November.

With no economic data on the calendar and no major reports due out before the November

Producer Price Index

on Friday, the benchmark 30-year Treasury bond was lately up 8/32 at 98 15/32, trimming its yield 2 basis points to 6.24%. The long bond's yield hasn't closed below that level since Nov. 26. Shorter-maturity note yields were unchanged to 2 basis points lower on the day.

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While the gains come on low volume (tracker

GovPX

observed just $10.6 billion changing hands by 10 a.m. EST, 11.3% lower than average for a Monday over the last month), they are more impressive than they appear given that oil is trading especially well today. Crude oil for January delivery was lately $26.53 a barrel on the

New York Mercantile Exchange

, up from $25.81 on Friday. It peaked at $27.07 on Nov. 22.

Also failing to depress Treasury prices, the dollar is sagging against the euro on a strong manufacturing report out of Germany.

On Friday, the November employment report cheered the bond market with the news that while job growth was strong and the unemployment rate remains at a generational low, wage growth was unimpressive. Today's action is largely an extension of that, said Todd Finkelstein of

Advest

in Boston. "The numbers last week on the surface were bullish for what was already an oversold bond market."

(In Finkelstein's view, the report was far less bullish beneath the surface, specifically in its revision of October wage growth from a 0.1% gain to a 0.3% gain.)

In addition,

Thomson Global Markets

managing analyst Ken Logan predicted that today's drift higher would be echoed in many of the remaining trading sessions of 1999. Not that anyone is crazy about the market. "There's a bit of positive bias out there, but no urgency to do anything at this point," he said.

Rather, it's largely a question of liquidity, or readiness to trade. It's never great at year-end, but this year it's expected to be worse than usual because of the Y2K date change. Poor liquidity pushes the market further in whichever direction it's heading, and the tendency in the Treasury market in recent years has been for buyers to dominate as the year draws to a close.