Tomorrow, it's all about Alan Greenspan. Today, it's all about tomorrow.

Treasury bonds improved in a light trading session, mostly due to short covering and taking advantage of the oversold condition that persisted through last week. The

Federal Reserve

chairman's semiannual

Humphrey-Hawkins

testimony is almost always a market mover, and so little betting was made ahead of that speech.

The Treasury's monthly

federal budget

statement revealed a $70 billion surplus in January 1999, outpacing the $58 billion forecast. Quarterly tax receipts render predicting a surplus predictable -- they're in January, April, June and September -- but the forecast was still too low. In addition, fiscal year 1999 (which began in October) is expected to be only the second year since the 1950s that the government shows a budget surplus. Last year's surplus totaled $70 billion. Broadly, a greater surplus translates to decreased Treasury supply, which would continue the established pattern. More demand for less bonds equals a rally.

The bond market benefited from a rally in the Japanese market overnight, lowering the benchmark 10-year JGB yield to 1.735%. After that, a limited number of buyers found something they liked today, pushing the yield on the 30-year bond down to 5.358%. The bond price rose 12/32 to trade at 98 13/32.

"Yields have backed up enough that it's somewhat enticing, but it's more noise than anything else," said Charles Reinhard, market strategist at

ABN Amro

.

Intriguingly, the meteoric rally in the equity market didn't affect bonds at all, probably because most of the trading in bonds right now is largely professional, without retail or asset allocators involved. As of 3 p.m.,

GovPX

volume was down 29% when compared to the average Monday. However, today's move also signals that anybody that was in the market is confident that this is the low end of the range, at least until the Fed chair speaks tomorrow at 10 a.m. EST.

A mildly hawkish stance would be appropriate for the Fed chair's speech, based on a spate of recent economic data, the stock market's prowess, and Greenspan's own assessment of the economy two weeks back, when he called the U.S. the "envy" of the world. Anything somewhat more dovish -- if the Fed chair is most keenly focused on

consumer price

or

producer price

indices -- or hawkish would be an opportunity for the market to rally or sell off.

"I think slightly hawkish is most likely," said Henry Willmore, senior economist at

Barclays Capital

. "The bond market has priced in that kind of view in terms of where risks are for the Fed."

Greenspan's usual pattern in his semi-annual testimony is to highlight both the positives and negatives within the economy. His even-handed approach is even evident in the construction of his speech: Most statements within a paragraph support or repudiate the previous statement.

The Fed will probably revise upward its expectations for 1999

gross domestic product

. As of July's testimony, the Fed forecast growth between 2% and 2.5%.

"The evolution of his comments are interesting," said Reinhard. "On Jan. 20 he said some moderation might be required for the expansion to continue; on Jan. 28 he said Internet stocks were rising under the lottery principal, and after the GDP report, he said we were the envy of the world."