The Treasury market rested up on the day before all the fun starts.

Very little happened today. The January

housing starts

report had bearish implications while the January

Import and Export Price indices

were marginally positive. There was little market reaction to either.

But tomorrow! Tomorrow brings the

Producer Price Index

and, even more importantly,

Fed

Chairman

Alan Greenspan's

semiannual

Humphrey-Hawkins

Congressional testimony on the economy and monetary policy.

In recent years, Humphrey-Hawkins has often triggered weeklong bond-market moves in excess of 2 points on the long Treasury bond in one direction or the other.

"In advance of that, people just sit back and wait," said Kevin Logan, senior economist at

Dresdner Kleinwort Benson

.

The benchmark 10-year Treasury note ended down 1/32 at 99 20/32, lifting its yield a fraction of a basis points to 6.556%. The 30-year Treasury bond, which has been displaced as the market benchmark in recent weeks by supply and demand dynamics, fell 10/32 to 99 23/32, lifting its yield 2.3 basis points to 6.270%.

The two-year note got a boost from the Treasury's announcement that next week's monthly two-year note auction will be $2 billion smaller than the last one, at $12 billion,

Merrill Lynch

government bond strategist John Spinello said. It ended up 1/32 at 99 18/32, trimming its yield 1.7 basis points to 6.615%.

At the

Chicago Board of Trade

, the March

Treasury futures contract ended down 2/32 at 93 22/32.

Logan thinks Greenspan is unlikely to spark a rally tomorrow, since the economy is still growing at a faster pace than the Fed thinks is sustainable. The best one can hope for, he thinks, is an unchanged market.

If, on the other hand, Greenspan suggests that the Fed will raise interest rates more aggressively than people currently expect, and the market goes down, Treasury yields should rise more or less proportionately, Logan says.

If that seems obvious, it's not. Over the last month, the Treasury yield curve has inverted, meaning that long-term yields have dropped below short-term yields. Long-term notes and bonds have outperformed short-term notes because the government plans to reduce the long-term supply.

Logan thinks that long-end yields will rise about as much as short-end yields if Greenspan is hawkish because by a key measure, the long end is as expensive relative to the intermediate part of the Treasury yield curve as it ever gets.

At 6.550%, the 30-year Treasury bond's yield is about 5% lower than the 10-year note's yield, he pointed out. Historically, investors in Treasuries have rarely been willing to accept a 30-year yield more than 5% lower than a 10-year yield. It's true that investors in English government bonds have settled for long-end yields 20% lower than intermediate-term yields, but only because they've had to, Logan said. "Certain institutional investors can only invest in gilts," he said. "We don't have that situation. Nobody has to buy Treasury bonds."

Economic Indicators

Housing starts defied expectations by rising in January. The pace quickened 1.5% to 1.775 million from 1.748 million in December. Economists polled by

Reuters

had predicted a fall to 1.65 million, on average. Building permit issuance, a leading indicator of housing starts, rose 8.7%, to 1.763 million in January from 1.622 million in December.

Still, starts are down from a revised peak of 1.804 million in January 1999. And the January increase was entirely due to a rise in multifamily housing starts, which are more volatile than single-family starts. Single-family starts fell.

Meanwhile, import prices experienced their gentlest rise in seven months in January, gaining just 0.1%. Less-important export prices were unchanged. The annual pace of import price growth declined for the first time in over a year, from 7.1% to 6.7%. The pace of export price growth held steady at 0.5%.

The weekly

Mortgage Applications Survey

detected declines in both refinancing and new mortgage activity. The Refinancing Index fell to 373.1 from 436.7, while the Purchase Index fell to 270.8 from 307.1.

Currency and Commodities

The dollar rose against the yen and fell against the euro. It was lately worth 109.42 yen, up from 109.18 yesterday. The euro was lately worth $0.9850, up from $0.9873 yesterday.

Crude oil for March delivery at the

New York Mercantile Exchange

, which rose initially, fell after following comments by Energy Secretary

Bill Richardson

and the Saudi Arabian oil minister. Richardson said the White House will unveil plans to ease the heating oil shortage, while the Saudi Arabian oil minister said oil has been appropriately valued over the last six months. Oil dropped to $30.05 a barrel from $30.06 yesterday.

The

Bridge Commodity Research Bureau Index

rose to 212.67 from 212.61 yesterday

Gold for April delivery at the

Comex

rose to $305 an ounce from $304.10 yesterday.