Bond prices fell hard on Friday as the market continued to erode steadily in the face of stronger economic data and a distinct lack of investor demand.

Yields began to rise after the U.S. merchandise trade deficit grew 8.3% in September to $10.9 billion as a gain in imports outpaced an increase in exports, the Commerce Department said. Imports grew 3.4% in September, to a record high of $49.8 billion, while exports gained 2.1% to $38.9 billion, the highest level in four months.

The 30-year Treasury bond was quoted down 28/32 to yield 6.30% not long after the report was released. Municipals fared better than the government market, but cash bonds were still quoted down 1/4 to 1/2 point. The December municipal futures contract was quoted down 14/32 at 101.12.

Downward momentum increased as commodities prices rose, and took the 30-year Treasury bond to its lows by mid-session. The long bond was quoted down 42/32 to yield 6.34% at noon, eastern time, while tax-exempt cash prices were quoted down 1/2 to 3/4 point. In the debt futures market, the December municipal contract was quoted down 28/32 to 100.30.

Sellers dominated the remainder of the session, traders said, adding that bid-wanted was heavy for a Friday, although a bid for the bonds by cross-over buyers kept some supply moving away from the Street. Demand from traditional buyers was glaringly absent, prompting seasoned traders to speculate that the market may be in for even more difficult times as the bears begin to feed on themselves.

"None of the rules work here," one trader said, "We're seeing bonds leave the Street to crossover buyers, which allows you to eliminate some of your problems and gives you some room to participate. But, this kind of downward momentum can feed on itself."

Friday's losses came on the heels of more than a month of selling. Dealers had retreated in an orderly fashion, content to set up shorts and wait for a buying opportunity that would allow them to take the market back up again.

Each time dealers tried to mount a comeback, they were rebuffed. What had been a calm, orderly retreat gradually turned into panic and an ensuing rout as losses became more severe and threatening. As a result, dealers became defensive, trying to protect the profits made earlier in the year. That, in turn, added to the lack of liquidity and increased the market's vulnerability to free fall.

"Dealers are doing anything to lighten their inventories and keep them light," said James L. Kochan, head of fixed-income research at Robert W Baird & Co. "They're not strong bidders for anything. People who were constructive just a few days ago are turning bearish fast.

"The train of thought is that the economy is improving, inflationary pressures are increasing, and rates are responding," Kochan said. "We're going to have to see something to disprove that."

By session's end, prices were quoted down 3/4 to one point on average, but selected bonds were down even more, traders said.

In late secondary dollar bond trading, South Carolina PSA 5 1/8s of 2032 were quoted at 5.82% bid, 5.77% offered; Alaska HFC 5.90s of 2033 were quoted 983/4-99 to yield 5.98%; and Chicago O'Hare MBIA 5s of 2018 were 5.69% bid, 5.67% offered.

Also, New York State Power 5 1/4s of 2018 were quoted at 96-5/8 to yield 5.55%; and Florida State Board of Education 51/8s of 2022 were at 93 3/4-94 1/4 to yield 5.56%.

In the debt futures market, the December contact settled down 29/32 at 100.29. The contract posted a low of 100.26 and a high of 101.16. The MOB spread narrowed to negative 451 from negative 460 on Thursday. The MOB narrowed from negative 469 a week ago, as tax-exempts hold in against bigger Treasury losses.

This week is cut short by the Thanksgiving Day holiday and, therefore, promises to be a quiet one, players said. There are few important economic indicators due out until next week.

Supply, meanwhile, is typically light during the holiday week. Only $2.3 billion of new deals are expected this week, according to figures calculated by The Bond Buyer Friday. The competitive slate is devoid of any sizable offerings, but the negotiated calendar features $146 million Ohio general obligation infrastructure improvement and refunding bonds, to be priced by PaineWebber Inc., and $103 million Illinois Housing Development Authority multi-family housing revenue bonds, to be priced by Bear, Stearns & Co.

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