In quiet trading yesterday, prices zigzagged during the morning as bouncing oil prices and spiraling grain prices after continued flooding in the Midwest fanned fears of inflation.

The 7 1/8% 30-year Treasury bond finished up 1/32, at 107 18/32-107 20/32, to yield 6.53%.

Oil was down early on rumors of a settlement between Iraq and the United Nations that would allow Iraq to sell more oil. But this afternoon, Organization of Petroleum Exporting Countries members announced a late July emergency meeting to put the lid on new supply, pushing oil up again.

By late afternoon, the rumors washed out and the West Texas intermediate crude contract for September finished up $0.76 to $18.25.

Prices for a variety of grain-related futures contracts continued to rise, pushing up the Commodity Research Bureau's index. Rising flood waters across the Midwest are forcing up prices for agricultural products. Grain contracts account for almost 25% of the value of the research bureau index.

The index closed up 2.83 on the day to 218.01. The index had been over 218.5 during the early afternoon.

But the effects of the commodity price moves were mostly drowned out by technical factors, traders said, and the September bond contract finished up 1/32 to 115.31.

The 30-year bond never touched the psychologically significant 6.50% barrier. Traders said breaking he 6.50% yield would take several more doses of good news on inflation and the deficit.

"This isn't a gimme. It's going to require more fuel to get over 6.50%," one trader said.

Traders said rumors hit the intermediate term market early that a major Japanese account would unload its holdings.

But the rumor had little impact, with the 10-year note in positive territory all day. The 6 1/4% 10-year note ended up 1/32, at 104.02-102.04, to yield 5.68%.

There were no surprises in the Treasury's bill auction. The six-month bill averaged 3.15%, with no tail and non-competitive bids of $1.1 billion. The three-month auction averaged 3.05%, with no tail and non-competitive bids of $1.2 billion.

The three-month bill ended at 3.04-3.02, up two basis points. The six-month bill ended at 3.15-3.13, up two basis points. The one-year bill also ended up two basis points at 3.28-3.26.

The consensus forecasts for today's housing starts report is up very slightly from the 1.24 million reported for May.

According to a research report from Donaldson, Lufkin & Jenrette Securities Corp., housing starts have been depressed by bad weather, which could lower the report for June or July. The firm is forecasting a 2% drop for June.

Market players are also looking to today's testimony by Federal Reserve Chairman Alan Greenspan before the House Banking Committee's subcommittee for economic growth and credit formation for signals on the Fed's latest moves.

Looking even further ahead, some economists are predicting bad news for the economy in the report of second quarter gross domestic product to be released July 29.

The report is "is likely to be disappointing, with growth of some 2% or less, hardly countering the near disastrous 0.7% first-quarter rise," said Philip Braverman, chief economist at DKB Securities Corp.

In a written market commentary, Braverman warned that "there is no realistic prospect for a major economic rebound in the second half as many forecasters mistakenly anticipate."

Braverman expects a period of consolidation and profit-taking in the bond market in the near term. But with the economy teetering on the edge of recession, Braverman is bullish for the rest of the year.Treasury Market Yields Prev. Prev. Monday Week Month3-Month Bill 3.08 3.06 3.106-Month Bill 3.22 3.19 3.241-Year Bill 3.38 3.37 3.482-Year Note 3.97 3.95 4.123-Year Note 4.26 4.27 4.455-Year Note 4.98 4.98 5.177-Year Note 5.32 5.35 5.5410-Year Note 5.68 5.72 5.9030-Year Bond 6.53 6.62 6.77Source: Cantor, Fitzgerald/Telerate

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