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Debt futures up

on late selling

CHICAGO: U.S. debt futures closed higher but off daily highs on late dealer and local selling on Monday.

Traders said the market was unfazed by the surge in commodity prices, which lifted the Commodity Research Bureau's index more than 1.5 percent.

June T-bonds traded above the two-week high of 110-17/32 and clung around the resistance level of 110-20/32 for most of the day. December Eurodollars rose to 94.19, but trade overall was extremely light.

"It was a really strange day," one Eurodollar futures trader said. "We were higher on really no news."

The news that did come out -- the strong rally in commodity prices -- failed to rattle the market, which rose at the opening on short-covering.

Strong European bond markets, dollar-friendly comments from G7 officials and the exercise of almost 7,000 May bond put options lifted June T-bonds to 110-30/32. Some traders were looking for the contract to test resistance at 111-00.

Locals began selling bonds around midday, but failed to lower prices much below the 110-20/32 level.

"Locals are trying to sell into this but are making no headway," one floor source said.

Locals began selling as corn futures in the next trading room skyrocketed to a new record high. Soybeans hit seven-year highs, while soft red winter ended locked up the 20-cent-per-bushel limit.

"Yes, it matters," James Bianco, research director for Arbor Trading Group Inc, said about the inflationary effect if the CRB index rises another five percent. So far, the CRB index has increased 10 percent in a year.

"Once the CRB reaches the 15 percent threshold, the inflation rate has been higher one year later every time," he said.

Since 1977, the CRB index has risen 1.5 percent or more on 44 occasions and U.S. bond prices have fallen on all but seven of those times, he said.

"In those seven cases, 60 percent of the time commodity prices were lower two weeks later, and 85 percent of the time bond prices were lower two weeks later," Bianco said.

At the end of pit trade, June bonds were up 18/32 at 110-16/32, 10-year notes were up 09/32 at 108-07/32, munibonds were up 22/32 at 112-13/32, December T-bills were up four basis points.-Reuter