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Debt futures higher, despite rise in oil

CHICAGO: U.S. debt futures on Monday ended higher, as a late rise in crude oil prices failed to spark any underlying concerns about a pick-up in the U.S. inflation rate.

"The market has come back into re-alignment," one bond analyst said. "Concerns about oil could easily be dissipated by a U.N.-Iraq deal."

The lack of progress in U.N. and Iraqi talks extended the 10-week oil rally, pushing May crude oil on the New York Mercantile Exchange back above $25.00 a barrel late in the day.

However, technical factors sparked short-covering, which continued in a lackluster fashion from Friday's heady pace.

"The 110-10/32 level (in June T-bond futures) was holding really well," said Mark Grant, president of the Grant Division of Access Financial Group Inc.

June T-bonds inched above the 110-10/32 level during the after-hours electronic Project A session, and earlier on Monday the contract held above the pivot point of 109-13/32.

"It has definitely put in an intermediate bottom," another analyst said.

Most floor traders agreed, stating that June bonds set a bottom at the April 11 low of 107-24/32.

Both red June and September Eurodollars attracted late commission house buying after rising through key resistance levels. One firm bought about 500 June 1997 Eurodollars and 500 September 1997 Eurodollar after June rallied above 93.75, the 50-percent retracement level.

September Eurodollars shot up to 94.11, implying a yield level of 5.89 percent. Many traders expect the most-active Eurodollar contract to trade between 94.10-94.11 and the April 11 low of 93.83, or 6.17 percent.

Grant said the yield on the 30-year cash bond could drop to 6.75 percent, which corresponds to 111-08/32 in June T-bonds, in the next several days. The yield closed at 6.78 percent on Monday, down dramatically after rising near the 7.00 percent level last week.

Further resistance for June is at 112-00, which is equivalent to a yield of 6.50 percent, he said.

"The market jumped the gun, thinking that the economy is moving too fast," one Eurodollar futures trader said. "Until we see a more definitive sign that the economy is picking up steam, September is rangebound."

Both March industrial production and capacity utilization could provide direction to the market when the figures are released at 0915 EDT/1315 GMT. Production is expected to fall 0.5 percent, from up 1.2 percent, and capacity is also seen declining to 82.4 percent from 82.9.

At the end of pit trade, June T-bonds were up 12/32 at 110-09, June 10-year notes up 08/32 at 108-05/32, and June munibonds up 25/32 at 111-26/32. December T-bills were nine bps up at 94.68 and Eurodollars were up four bps at 94.11.-Reuter