Stocks Cue Bonds Again, Lower This Time

Traders are awaiting the Consumer Price Index and a Greenspan speech tomorrow.
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Friday, the Treasury market got a nice lift from sliding stock prices. Today, the exact opposite is happening. But as stocks have come off their highs, Treasuries have come off their lows.

With no major economic reports due out today and other sources of guidance also scarce, the benchmark 30-year bond was lately off 15/32 at 97 21/32, lifting its yield 4 basis points to 6.30%. Shorter-maturity note yields were 2 to 3 basis points higher on the day so far.

Earlier, with the

Dow Jones Industrial Average

up as much as 108, the long bond traded down as much as 17/32. "As stocks are starting to fade, we're starting to see Treasuries see a little bit of improvement," said David Ging, Treasury market strategist at

Donaldson Lufkin & Jenrette

.

Bonds are trading in inverse lockstep with stocks because of asset reallocation, Ging said. "In the end, though, in order for stocks to lead to a sustained bid for Treasuries, we need to see continued sharp declines in stocks, particularly if the dollar remains weak."

Ging's not holding his breath for that sustained bid for Treasuries. With the dollar flagging against both the yen and the euro, inflation on the rise (according to Friday's September

Producer Price Index

), the

Fed

in a rate-hiking mode and the global economy strengthening, he expects the market to deteriorate further this week, taking yields even higher than the two-year highs reached on Thursday and early Friday.

As they try to handicap the likelihood that the Fed will hike rates at its next meeting on Nov. 16, traders are focused this week on the September

Consumer Price Index

, the broadest measure of inflation, due out tomorrow morning, and on Fed Chairman

Alan Greenspan's

remarks at an

Atlanta Fed

conference at midday tomorrow. The CPI is forecast to rise 0.4% overall, and 0.3% at its core, which excludes food and energy prices.