Long-term Treasury prices managed to close slightly higher Monday after the bond market spent most of the session erasing the losses posted overseas and in early U.S. trading. In spite of the comeback, traders were generally somewhat bearish.

* * * In spite of the comeback, traders were generally somewhat bearish. On Friday, Treasury prices hit their highest levels since April, only to sell off from those levels, and traders said Friday's price action suggested the market had rejected the new highs and will head back down to trade in the middle of its recent range. The Treasury market is in the summer doldrums, with the only big event coming up the Federal Reserve's policy meeting on Aug. 22. But analysts say that because the bond market has already taken out of prices any fear of a rate hike,

and there's no chance the Fed will decide to cut rates, the Fed's announcement isn't likely to have a big impact on prices. James Kochan, a bond market strategist at R.W. Baird & Co., said the bond market had rallied too far and predicted prices would have a hard time getting above Friday's highs "in the absence of data (suggesting) that the Fed might have to ease." "I think it will be difficult to sustain even these levels unless we get soft data," Kochan said, but argued it's more likely the data will be stronger than expected becaus e "there hasn't been a significant change in the fundamentals that created strong growth. The Fed has raised the funds rate 175 basis points since then. But Kochan noted that Treasury yields are "a whole lot lower" now than when the Fed started tightening, while corporate bond yields are "not much higher" and mortgage rates only 25 to 30 basis points higher. "If we're at 8% for 30-year fixed (rate mortgages) now, we were at 7 3/4% back then," he said. "And those mortgage rates were sufficient to produce very strong housing, and we're back there now." "I think the slowdown is living on borrowed time," Kochan said and predicted that by the end of the year, the slower growth will be seen like "just another Q2 slowdown similar to those in prior years," which turned out to be only temporary. Treasuries gave up ground in overseas trading and hit its lows for the day early in the U.S. session, only to creep back to Friday's closing levels by mid-afternoon. Some analysts blamed part of the market's early U.S. weakness on the bigger-than-expected 0.9% rise in June business inventories. They said that not only did the inventories gain suggest an upward revision to second-quarter GDP, but because the inventory-sales ratio came in unchanged, it suggested inventories growth might remain strong in the third quarter. But Jim Glassman, an economist at Chase Securities, argued that the sheer pace of growth in inventories argued for slower inventories growth going forward. "It's not sustainable to have inventories building at an annual rate of $70 to $80 billion," he said. "The fact that you're growing at a much faster than normal past means at some point you'll downshift." Glassman said the bond market's early weakness just reflected a continuation of Friday's trade. A note trader said Treasuries bounced Monday afternoon because there were "no sellers at the lower levels." But prices are still well off Friday's highs, he said, noting that "there was no buying at higher prices Friday." While the Fed is out of the picture, it remains to be seen if there's demand for the market at current levels, he said, adding that corporate supply could also be a factor this week. "Now we'll see if these lower prices can bring in any demand," he said. A bond salesman was upbeat, noting that prices had bounced on surprisingly good volume by recent standards, with the GovPX pricing service showing that $30.1 billion of Treasuries had traded as of 1604 ET. "We did some real technical damage on the charts and then basically proceeded to reverse the technical damage," the salesman said. "I'm not sure what propelled the bond, but that single-handedly pulled the rest of the market higher." He predicted the market will remain on the defensive until it sees Wednesday's report on July consumer prices, but said the bond market could resume rallying after that. The salesman noted that the Treasury will do buybacks this Thursday and next Thursday and that bond indices will extend significantly at the end of the month, given the refunding, which should trigger buying late in the month by managers of indexed funds. The cash 30-year was up 5/32, bid at 107 25/32, where it yielded 5.695%, and the 10-year note was up 2/32 at 99 22/32 and yielded 5.775%. Treasury bill rates were mixed. Treasuries ignored a further run-up in crude prices Monday, bouncing over the course of the afternoon even as Sep crude climbed to a high $32.00 per barrel. Sep crude finished up 90 cents at $31.92 amid continued market anxiety about a lack of supply. Separately, Treasury sold $39 billion of short-term debt, including $21 billion 37-day cash management bills and $18 billion in its weekly three- and six-month bill auction. The 37-day bills were sold at 6.35%, while the three- and six-month issues were sold at 6.090% and 6.075%, respectively. The following were key coupon prices and bill rates in the cash market, compared with levels at Friday's close:

Fed funds: 6 9/16% 3-mo: 6.09 dn 0.02 6 1/4% 2-yr: 100-00 unch 6-mo: 6.07 up 0.01 6 3/4% 5-yr: 102 24/32 unch 1-yr: 5.89 dn 0.03 5 3/4% 10-yr: 99 22/32 up 2/32

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