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Treasuries Retreat as Stocks Roar and Consumers Spend

Also, the latest report from the futures pit shows that the shorts are gone.

The combination of a rebounding Dow Jones Industrial Average, stronger-than-expected economic news and a bearish indication from the interest-rate futures market depressed Treasury prices today.

On a day without any first-tier economic news, the focus was primarily on the Dow. And, like last week, the Dow's pain translated into gains for bond prices, as traders allowed themselves to hope that a struggling Dow portends an economic slowdown, today's Dow rebound pulled the rug out from under the Treasury market.

Meanwhile, the day's main economic release --

personal income and consumption

for January -- showed a bit more strength than expected.

Personal income rose 0.7% in January, in line with expectations, while personal consumption expenditures rose 0.5%, a tenth more than expected. However the December gain in personal consumption expenditures was revised to 1.1% from 0.8%. The 1.1% increase was the largest since a 1.1% increase in May 1998.

The combination of the December revision and the January consumption numbers point to a significantly faster pace of


growth in the first quarter of this year than economists were expecting. Personal consumption expenditures (PCE) account for about two-thirds of GDP and the 6.9% pace at which GDP is estimated to have grown during the fourth quarter was powered by a 5.9% increase in PCE. Henry Willmore, senior economist at

Barclays Capital

, said today's release suggests that PCE will grow at a pace in the neighborhood of 5.5%, up from a previous estimate of 4%. What economic slowdown?

(Separately, the

chain-type price index for personal consumption expenditures rose 0.2%. The year-on-year rate of increase for the index, the


new favorite for measuring inflation, held steady at 2.0%.)

At the same time, the latest biweekly

TheStreet Recommends

Commitments of Traders

report from the

Commodity Futures Trading Commission

, released Friday after the close, held some negative news. It showed that speculators in bond futures at the

Chicago Board of Trade

were net short just 1,044 contracts, down from 27,881 two weeks earlier and a record 71,094 two weeks before that.

That's negative because it points up the extent to which the improvement in Treasury prices over the last month represented short-covering, and how little short-covering remains to be done. Or, as

Miller Tabak

chief bond market strategist Tony Crescenzi put it: "If there's going to be a rally, it's not going to come from a short base because there is no short base."

The selloff hit the shortest-maturity issues hardest, in a reversal of last week's trend, when the shortest maturities outperformed. That makes sense,

Lehman Brothers

government bond strategist Doug Johnston said, because sometime during the next couple of weeks, the Treasury Department is likely to announce its first buyback of Treasury securities, focusing on the longest-maturity issues.

The benchmark 10-year Treasury note lately finished down 22/32 at 100 16/32, lifting its yield 9.4 basis points to 6.431%. The two-year note fell 6/32 to 99 31/32, lifting its yield 15.6 basis points to 6.517%. The 30-year bond lost 24/32 to 100 23/32, lifting its yield 4.3 basis points to 6.196%.

At the

Chicago Board of Trade

, the June

Treasury futures contract finished off 16/32 at 94 13/32.

Economic Indicators

Also today, the

APICS Business Outlook Index

rose to 53.5 in February from 48.3 in January.

This week's major economic releases are the

Chicago Purchasing Managers' Index

tomorrow, the

Purchasing Managers' Index

on Wednesday and the

employment report

on Friday.

Currency and Commodities

The dollar softened against the yen but whaled on the euro, as traders assigned a lower probability to an interest-rate hike by the

European Central Bank

. It lately was worth 109.35, down from 110.34 on Friday. The euro, which traded as low as $0.9400 earlier, lately was worth $0.9709, down from $0.9742 on Friday.

Crude oil for April delivery at the

New York Mercantile Exchange

fell to $30.17 a barrel from $30.35 on Friday.


Bridge Commodity Research Bureau Index

rose to 207.45 from 207.19 on Friday.

Gold for April delivery at the


fell to $294.2 an ounce from $294.60 on Friday.