Treasury prices fell as traders took profits on the gains of the last week and a half ahead of the release of the June employment report tomorrow. Strong economic news also encouraged selling.

The benchmark 10-year Treasury note fell 14/32 to 103 9/32, lifting its yield 6 basis points to 6.044%. Shorter-maturity yields rose somewhat less.

The 30-year Treasury bond tumbled 22/32 to 104 23/32, lifting its yield 4.8 basis points to 5.910%. And at the

Chicago Board of Trade

, the September

Treasury futures contract lost 17/32 to 97 6/32.

Treasuries followed European issues lower in price early in the session in response to comments in Europe by

European Central Bank

president

Wim Duisenberg

. As expected, the ECB held interest rates steady at its latest biweekly meeting. But, after the meeting, Duisenberg told reporters that the European economy remains at risk of higher inflation. On the day, the benchmark German 10-year government bond yield jumped to 5.20% from 5.12%.

But the main catalyst for selling of Treasuries today, according to Ken Logan, managing analyst at

IFR

in Boston, was fear that the June jobs report could cause a major shift in monetary policy expectations.

At the moment, investors are split over whether the

Fed will hike interest rates again at its next meeting on Aug. 22. At the CBOT, traders of

fed funds futures are discounting a slightly greater than 50% chance of an August hike.

The Treasury market is even more certain that the Fed won't hike in August. The two-year Treasury note's yield, which normally stays in the vicinity of the fed funds rate -- or in the vicinity of where the fed funds rate is expected to go -- has been hovering around 6.30%.

While that view is supported by recent economic reports showing slower economic growth, "tomorrow could change all that," Logan said. "In a matter of seconds, the markets could price the Fed back in. So there was some discretionary, better-safe-than-sorry selling into the number."

Any why not? Yesterday, some Treasury yields reached their lowest yield levels (highest price levels) in weeks, while others reached their lowest yields in months.

Meanwhile, a couple of minor economic reports reminded bond investors that signs of a slowing economy are still tentative.

Initial jobless claims

dropped back below the 300,000 level, falling to 296,000 last week from 308,000 the previous week.

And

factory orders

rebounded more sharply than expected. After falling a revised 3.8% in April, factory orders rose 4.1% in May. The year-on-year pace spiked to 11.1%, the fastest in more than five years.

Economic Indicators

In other economic news, the weekly

Mortgage Applications Survey

detected increases in both refinancing and new mortgage activity. The Refinancing Index rose to 338.5 from 319.2, while the Purchase Index rose to 318.1 from 305.8.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 107.44 yen, up from 106.94. The euro was worth $0.9503, down from $0.9529. For more on currencies, please take a look at

TSC's

Currencies column.

Crude oil for August delivery at the

New York Mercantile Exchange

fell to $29.99 a barrel from $30.67 on renewed speculation that Saudi Arabia will boost output.

The

Bridge Commodity Research Bureau Index

fell to 217.89 from 219.39.

Gold for August delivery at the

Comex

fell to $284.60 an ounce from $285.30.