Treasury yields tacked higher in light trading, driven primarily by the action in the stock market. Yesterday, a late-day selloff in the stock market in response to the

Fed's statement on interest rates helped bonds pare their losses. That move was reversed today.

With no major economic data on the calendar, the all-important

employment report due out on Friday, and very little to do until then, bond market participants allowed themselves to be guided by the idea that the stock market is a leading indicator of economic activity.

The benchmark 10-year

Treasury note fell 8/32 to 98 29/32, lifting its yield 3.4 basis points to 5.895%. Shorter-maturity yields rose by comparable increments.

The 30-year

Treasury bond was unchanged at 104 8/32 to yield 5.943%.

At the

Chicago Board of Trade

, the December

Treasury futures contract fell 2/32 to 97 26/32.

Volume was light, suggesting that the moves were larger than they would have been in heavier trading activity. Through 3 p.m., $23.3 billion of Treasuries changed hands, 22.7% less than average for a Wednesday over the last month, according to tracker

GovPX.

The underperformance of short-maturity issues was in keeping with the aggressive stance on interest rates that the Fed outlined yesterday. The

Federal Open Market Committee said in its assessment that inflation remains a greater risk than subpar growth. That indicates that additional interest rate hikes are possible, keeping short-term bond yields from improving. But long-term issues benefit because an aggressive stance by the Fed makes inflation less likely to heat up.

"Activity has been very much weighted to what the stock market is doing," said Mary Ann Hurley, bond trader at

D.A. Davidson

in Seattle. That's based on the assumption that rising stock prices encourage consumer spending, stoking economic growth.

Of course lately, it's been mainly the opposite. "The stock market has lost a tremendous amount of valuation," Hurley said. "As consumers feel the brunt of lower portfolio valuations, it should limit consumer spending," cooling the economy and keeping interest rates from rising.

Oil fell today, but it, too, has the potential to brake economic growth, especially as the weather cools and consumers face higher utility bills, Hurley said. "The consumer hasn't felt the impact of the prices he's going to be paying," she said. "It's certainly going to have an impact on the economy. I think it's got to be viewed as a positive factor. If it doesn't slow the economy, at least it's going to prevent a resurgence of consumer spending."

Selling of Treasuries as a hedge against anticipated exposure to new corporate bonds was also a factor in today's selloff, bond market analysts said.

Unilever

(UN) - Get Report

today announced plans to sell $7 billion of new bonds.

Economic Indicators

Factory orders

(

definition |

chart |

source

) rose 2.0% in August, a little more than expected. Economists polled by

Reuters

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had forecast a gain of 1.8%. The July decline was revised to 8.1% from 7.5%.

Durable goods orders

(

definition |

chart |

source

) rose 2.9%, in line with the advance number reported last week. Excluding transportation equipment, durables orders rose 1.8%, revised from 1.9% last week.

The

Purchasing Managers Non-Manufacturing Index

(

definition |

source

) rose to 62 in September from 60 in August.

The weekly

Mortgage Applications Survey

(

definition |

chart |

source

) detected increases in both refinancing and new mortgage activity, against a backdrop of falling mortgage interest rates. The Refinancing Index rose to 470.6, the highest since November 1999, from 451.3. The Purchase Index rose to 320.4 from 307.9.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 109.34 yen, up from 108.84. The euro was worth $0.8746, down from $0.8752. For more on currencies, see

TSC's

Currencies column.

Crude oil for November delivery at the

New York Mercantile Exchange

fell to $31.43 a barrel from $32.07.

The

Bridge Commodity Research Bureau Index

rose to 226.99 from 226.94.

Gold for December delivery at the

Comex

fell to $273.20 an ounce from $274.80.