Treasuries came back strongly today after yesterday's losses, the result of heavy buying into equities. In their eagerness to purchase stocks, investors reaching out for cash offloaded their bond holdings. Today some of that trend reversed as the stock market retreated. The latest jobs data also brought the unpleasant economic reality back to the fore after yesterday's euphoria, with the number of first-time unemployment insurance applicants increasing by a sizable margin.

Volatility was down as the market digested the

Federal Reserve's decision to lower interest rates well before its monetary policy meeting three weeks hence. There were even murmurs of an overreaction among stocks, though after the recent spate of gloom in the

Dow

and the

Nasdaq

, such behavior may have been justified. Yields on bonds slipped, approaching their lows of a few days ago.

The benchmark 10-year

Treasury note rose 27/32 to 105 10/32, lowering its yield 11.1 basis points to 5.043%.

The 30-year

Treasury bond rose 26/32 to 111 24/32, lowering its yield 5.2 basis points to 5.443%.

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Many investors remain certain that the Fed will lower rates again and soon -- in fact, 22 of the 24 primary money market traders polled by

Reuters

fully expect the central bank to reduce interest rates by another 25 basis points, or a quarter of a percentage point, at the

Federal Open Market Committee meeting at the end of January. Analysts are generally holding on to the belief that Treasury yields will continue to dip until the Fed clearly signals it is done cutting rates for a while.

"The bonds saw some buying overnight, and today stocks are helping the bond market," said Vincent Verterano, head of government bond trading at

Nomura Securities

. The bond and stock markets usually move in opposite directions as investors transfer assets from declining, and often volatile, equities and put them in the more stable notes and bonds.

Verterano agrees with the general opinion that the economy is still slowing and will thus keep the Fed "vigilant about upcoming data, such as the unemployment report."

TheStreet.com

wrote a separate story about

the importance of tomorrow's

employment report

.

Douglas Lomma, technical analyst at

MCM Moneywatch

, thinks that Fed chairman Alan Greenspan had a "heads up" on the unemployment information, and the central bank's move yesterday may have taken that information into account. "There are certain sections he has access to. But what you're not going to hear from them is that they goofed on December 19 by not lowering the rates sooner," he said.

Lomma believes the larger problem of a weak economy with lowering consumer confidence will remain the focus. What that does to bond prices depends pretty much on how the equities perform. "Going forward, the bond outlook coincides with what we are saying about the market moving inversely to equities. The major equities should trudge higher, on average, though not on a parabolic curve, as happened in

the stock market's run with the aid of the dot-coms," he added.

Look for Treasuries to consolidate either way in the short term. Verterano feels the bond market is a little high at this point and that there may be some selling soon. On the other hand, he observed, "there is still fear that the stock market reaction to the Fed's announcement was temporary," so Treasuries could gain as well on that sentiment.

At the

Chicago Board of Trade

, the March

Treasury futures contract rose 22/32 to 105 4/32.

Economic Indicators

In economic news, the

initial jobless claims

(

definition |

chart |

source

) report, which tracks the number of people seeking unemployment benefits for the first time, rose to 375,000 in the week ended Dec. 30, from 359,000 in the previous week. It has risen for the third consecutive week and is at its highest level in two and a half years. Last week's result was substantially revised from the 333,000 as initially reported, understandable since only 18 states had provided hard data at that time. The four-week moving average rose to 352,250, its uppermost number since mid-July of 1998.

Factory orders

(

definition |

chart |

source

), that is, new orders for manufactured goods, rose 1.7% in November, more than expected. Economists polled by

Reuters

had forecast a 1.3% rise, on average. The annual growth rate of factory orders rose to 2.1% from 1.8% in August.

Finally, the

Purchasing Managers Non-Manufacturing Index

(

definition |

source

) dropped to 53 in December from 58.5 in November. The index is compiled from the purchasing activity of managers in the service industry.

Currency and Commodities

The dollar rose against the yen and fell against the euro. It lately was worth 115.64 yen, up from 113.65. The euro was worth $0.9496, up from $0.9281. For more on currencies, see

TSC's

Currencies column.

Crude oil for February delivery at the

New York Mercantile Exchange

rose to $28.10 a barrel from $28.00.

The

Bridge Commodity Research Bureau Index

rose to 227.29 from 225.90.

Gold for March delivery at the

Comex

slipped to $268.40 an ounce from $269.30.