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Treasuries Rise as Some Investors See Value in High Yields

But risky events loom, starting with the May CPI on Wednesday and a speech by the Fed chairman on Thursday.

Treasury prices are higher this morning for the first time in 10 trading sessions, in what market analysts are calling bargain-hunting after a rout that drove yields to their highest levels in more than a year.

But they caution that any improvements may not be sustained. The May

Consumer Price Index

is slated for release Wednesday, and



Alan Greenspan

is scheduled to talk about the economy and monetary policy before


on Thursday. If either or both of those events suggest that the Fed is likely to hike interest rates more than once in the months ahead, look for renewed grief in the bond markets.

The benchmark 30-year Treasury bond lately was up 17/32 at 88 7/32, trimming its yield by 4 basis points to 6.12%. Most shorter-maturity note yields were also lower by roughly similar amounts.

With no market-moving economic indicators on the calendar and Chairman Greenspan, testifying before Congress today as well on high-tech industry, sticking to that

topic, the only event of major interest to bond traders today was an intervention by the

Bank of Japan

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to halt the yen's recent climb to around 117 to the dollar. A stronger yen makes Japanese exports more expensive, hindering efforts to jump-start the economy.

On the margin, the bounce in the dollar to around 120 yen helps Treasuries, since a strong dollar helps control inflation by keeping import prices low. But the Treasury market isn't very closely linked to the currency market these days; the latest leg of the bond bear market, which started at the end of April, was accompanied first by a rising dollar (until about May 20) and then by a falling currency.

Rather, market watchers said, today's action represents little more than a bit of interest in Treasuries at yield levels that some investors think represent value, and perhaps a bit of short-covering. "Some of it has to do with discussion of asset-reallocation," said

Lehman Brothers

economist Joel Kent.

"If you view Friday's trade as capitulation, this is just a relief consolidation," said Christopher Fitzmaurice, co-head of government bond trading at

Salomon Smith Barney

. On Friday, he noted, various sectors of the market hit levels where buyers became interested: A long bond yield of 6.125%, a 10-year note yield of 6% and a Treasury bond futures contract price of 114.

The interest isn't huge, however. Volume is paltry again today so far, with tracker


seeing $10.2 billion change hands by 10 a.m., 37.5% below average for a second-quarter Monday.

And this week's events pose a threat to bond bulls. A weaker-than-expected May CPI (the consensus estimate among economists surveyed by


is for an 0.2% gain on both the overall and core readings) may well bring more buyers into the market. The risk is in a stronger-than-expected number, and what Greenspan may say about it on Thursday.

An increase of 0.4% or more, Fitzmaurice said, "will destroy this market, because the market will start pricing in multiple tightenings." Treasuries are currently pricing in one tightening and a 50% chance of a second, in his view.