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Treasuries Rise for a Second Day on Short-Covering

The possibility that a weaker-than-expected CPI will trigger a rally has shorts taking profits.

Treasuries are advancing for the second day in a row in a move attributed mainly to short-covering ahead of big event risk tomorrow and Thursday in the form of the May

Consumer Price Index

and a speech by

Fed

Chairman

Alan Greenspan

.

The benchmark 30-year Treasury bond, which on Friday fell so far in price that its yield reached the highest level in a year and a half, was lately up 10/32 at 88 25/32, trimming its yield by 2 basis points to 6.07%. Shorter-maturity note yields were also lower by a basis point or two.

Noting that volume is light, Richard Bodkin, senior government trader at

Banc One Capital Markets

, said: "I don't think it's a big major commitment to bonds; I think it's just short-covering" after last week's rout, which he said dragged prices deep into oversold territory.

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There are no market-moving economic indicators on the calendar, and apart from a rally in the U.K. bond market triggered by a weaker-than-expected report on retail prices, there are few events behind today's move.

Short-covering makes sense because of the risk that the May CPI will print weaker than expected, and that Greenspan will subsequently prepare the market for no more than a single interest-rate hike in the months ahead.

The Treasury market is currently divided,

Bear Stearns

Treasury market strategist Avram Altaras said, between players who expect the Fed to raise rates only at its June 29-30 meeting (they think Treasuries are cheap at these levels), and those who expect the Fed to raise rates on June 29-30, and again in August, if not a total of three times before the year is out (they expect prices to go lower still).

The CPI, he said, may determine "who gets more credibility," the strategist said. The consensus estimate among economists surveyed by

Reuters

is for a 0.2% rise in both the overall and core measures. A weaker-than-expected reading will lend more credibility to the single-hike camp; a stronger-than-expected reading will spur preening in the multiple-hike camp, Altaras said.

In any case, all ears will be perked for Greenspan's 10 a.m. EDT speech to the congressional

Joint Economic Committee

Thursday, when he is widely expected "to reveal something," Altaras said.

Altaras also said the Treasury market is benefiting from a lighter slate of corporate new issues this week than last week.