That 5.55% level the world was

talking about? Fuhgedaboudit.

The 30-year Treasury bond rallied sharply off to trade at 99 11/32, a 27/32 gain on the day. The yield fell to 5.55%, a new historical low since the government began selling these securities in 1977. Hard not to like Treasury bonds when entire continents are imploding; clearly investors are hoping the


feels the same way Aug. 18 at its committee meeting.

Expectations as reported by


For once, the bond rallied despite other market fundamentals' softness. Stocks were off mildly; the dollar was firm against the yen, but not to any extraordinary level, and the CRB/Futures were up slightly. Fear of devaulations in both China and Russia -- horrific prospects on economic and political levels -- stoked the bond market to its highs.

When a new 30-year bond prices, it generally rallies as investors push the bond down before the auction to pick up gains after the new bond prices. However, sources downplayed that influence, saying the gains in the dollar and weakness in emerging markets were a greater source of the rally.

"Some part of it is

the new bond," said

Paribas Capital Markets'

chief bond strategist Richard Gilhooly. "But the whole market is up. The bond is leading the rally but the two-year note has rallied 3 to 4 basis points."

According to

Miller Tabak Hirsch

, front-month futures have appreciated in 11 of the 18 auctions since 1992 where a 30-year refunding was included. The futures contract averages a 9-point gain in the week following a refunding. It closed today at 124 8/32, up 18/32.

However, not all of those refundings saw a 30-year yield at historical lows. Then again, not all refundings were in the face of a continent-sized meltdown. Treasuries have been unable to hold the bid in the last several weeks because of the flatness in the curve, but strong buying from both hedge funds and foreign central banks sustained the rally.

"We've seen strong buying from the international accounts and foreign central banks," said Tom Ruff, vice president in proprietary trading at

Daiwa Securities

. "The market trades well -- there's been rumors about Russian devaluation, and the usual China devaluation rumors."

The dire financial situation in Russia continues to deteriorate further. The country, with mountains of short-term debt, still lacks a dedicated tax collection system and unable to find an end. Latest rumors were that the

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Russian Imperial Bank

had halted client transactions, and that hedge funds were selling deutsche marks against the dollar. Dollar/mark was up 0.017 to trade at 1.80. Dollar/yen, meanwhile, traded up 1.3 to 146.32. With continued yen's weakness, rumors continue about the potential devaluation of the Chinese yuan.

A large coupon payment is coming up Monday for the Treasury, and investors were putting money back to work. The refunding auction, which settles Monday, raised $37 billion, with $30 billion replacing existing notes and another $7.2 billion in new funds. However, another $24.9 billion will be paid out in coupon interest Monday by the Treasury, adding fire to the grill for bond investors.

It is unclear whether domestic investors are warming to the idea that the


may rescind its tightening bias and therefore more appreciation in bonds is a possibility.

Monday should be interesting. With the bond at historical levels, this rally may be again short-lived. But international investors, happy in the knowledge that the

Federal Reserve

is one bank that isn't going to collapse, may continue to plunk money into the U.S. until evidence arises that Japan is making changes.

Economic data, as usual, were not even afforded the backseat. The


was up 0.2%, this time enhanced by a 0.8% increase in automobile prices. Excluding food and energy prices, producer prices rose only 0.1% for the month, partially due to another steep increase in prescription drug prices, up 1.7%.

On a year-over-year basis, prices excluding food and energy are up 1.1%.

Someday the

General Motors

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strike will stop affecting the U.S. economy. But in July,

industrial production

fell 0.6%, with a 0.7% decline in manufacturing. Excluding motor vehicles and parts, production rose 0.1%. Manufacturing tailed off in the steel, glass and rubber industries, as witnessed in anecdotal evidence from various Federal Reserve districts, due to this strike.

"It will be several months before we get a clear picture of what is going on in industrial production given that the August and September data are likely to be skewed," said a report from

Barclays Capital.

Expectations as reported by Reuters