Treasuries Surrender Friday's Gains

If anyone needed an excuse to sell, the stock market is giving them one.
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Treasury yields are headed back toward their highs as traders get out of the way of several key economic releases and a speech by

Fed

Chairman

Alan Greenspan

slated for later this week. Romping stock prices may also be serving as an excuse to sell bonds.

The benchmark 30-year Treasury bond was lately down 19/32 at 94, lifting its yield 4.8 basis points to 6.588%. On Wednesday, the long bond closed at yield of 6.621%, a two-year high.

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"There's no reason for bond market investors to participate much," said Larry Berman, fixed-income strategist at

CIBC World Markets

in Toronto. "We've got CPI, PPI, retail sales and Greenspan all coming up at the end of the week, so there's no reason to make big bets."

The

Producer Price Index

and

retail sales

reports come out Thursday morning, Greenspan addresses the

New York Economic Club

Thursday night, and the

Consumer Price Index

comes out Friday morning. All three economic reports are for December. No major economic reports are due out in the meantime, and none at all are slated for today.

Typically for a dataless session, volume is light. By 10 a.m. EST, just $9 billion had changed hands, 7.3% below the average for Mondays over the last month, according to tracker

GovPX

.

Prices are down because investors are pessimistic about how high interest rates may have to rise before the pace of economic growth comes down into line with the Fed's target for it. The Fed forecast

GDP

growth in the 3.5% to 3.75% range in 1999. As of the third quarter, the latest for which GDP has been calculated, it was up 4.3% year-on-year.

"The market's in pretty bad shape fundamentally," said Mark Mahoney, Treasury market strategist at

Warburg Dillon Read

in Stamford, Conn. Against a backdrop of economists revising their forecasts to call for the Fed to hike the

fed funds rate

by as much as 100 basis points this year, and of strong economic data like

Friday's December

employment report

, Mahoney said that "rallies like we had

Friday are going to have to considered counter-trend. The market's going to stay soft, so if anyone needs an excuse to sell, like the stock market flying off, they're going to take it."

Rising stock prices are perceived as a threat to the bond market because of the stock market's role in driving economic growth by creating wealth and boosting consumer confidence.

Berman, noting that bond investors didn't take that opportunity on Friday, said today's action was less about the stock market than about the bond market's failure to build on Friday's gains.