Treasuries Still Crying Over Greenspan's Latest

The dollar's continuing drop against both the yen and the euro isn't helping.
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The Treasury market continues to feel the sting from last Thursday's

tough talk by

Fed

Chairman

Alan Greenspan

. For the third session in a row, prices are lower, lifting yields higher.

The benchmark 30-year bond was lately 16/32 lower at 88 26/32, lifting its yield 4 basis points to 6.07%. Shorter-maturity note yields were higher by roughly similar amounts.

Greenspan's

Humphrey-Hawkins

testimony, which he'll repeat for the Senate on Wednesday, put the markets on notice that the Fed is disposed to hike rates again at its next meeting on Aug. 24 if the economic data between now and then warrant it. On the day before the testimony, the long bond closed at a yield of 5.90%.

The indicators of greatest interest to the Fed start showing up on Thursday, with the second-quarter

Employment Cost Index

and the advance estimate of second-quarter

GDP

. Today's only report, June

existing home sales

, did nothing to ease concerns that consumer spending is too strong for the economy's long-term good. The pace of existing home sales rose 10.6% to an all-time high of 5.53 million from 5.00 million in May, even as other housing-market indicators such as

new homes sales

and

housing starts

have declined from their recent peaks.

The currency market also continues to give investors in Treasuries a reason to sell, with both the yen and the euro making multi-month highs against the dollar. The euro stands at $1.065, a level it hasn't closed above since May 11, and the yen at 116.41 to the dollar, a level it hasn't closed above since Feb. 16.

Meanwhile, the recent weakness in stocks doesn't appear to be translating into any kind of benefit for bonds. "Traders will trade it that way temporarily, but I'm not sure that the stock market up 10% on the year warrants buying Treasuries as a safe haven," said Tom Connor, head of government bond trading at

J.P. Morgan

.

Connor thinks the Fed will probably hike rates again next month, and if not then, then certainly at its next meeting in October. With commodity prices improving and global growth on the rebound (as the action in the currencies suggests), the 75 basis points of easing that the Fed administered last fall, 50 of which remain in the market, looks increasingly out of place, Connor reasons. "The least they can do under those circumstances is take that back," he said. "It's a no-brainer."