With little in the way of substantive economic news due this week, the Treasury market will probably remain glued to current ranges.

In the aftermath of a Federal Reserve tightening last week, bond investors are anxiously awaiting the release of economic indicators to get a read on growth in the United States. But this week's slate of numbers are not of the caliber participants are looking for. "The market is going to follow the economy, and there isn't much out this week to provide direction," said Donald Fine, chief market analyst at Chase Securities Inc.

This week, the Commerce Department will release its reports on July durable goods orders and the first revision to second-quarter gross domestic product. In addition, the Labor Department will release its weekly jobless claims report.

Fixed-income observers have already begun setting their sights on the August employment report, which will provide bond investors with their first comprehensive view of the economy's performance that month.

Bonds rallied last week after the Fed increased both the discount and federal funds rates by 50 basis points, citing the need to contain inflation pressures in the face of strains on U.S. manufacturing capacity. The rally was fueled by enthusiasm over the size of the rate increases coupled with the belief that the central bank will not need to raise rates for awhile.

But the post-tightening rally came to an abrupt halt, and prices retraced all of their gains to finish unchanged on the week as the bond market, unable to sustain the initial move, caved in. Participants generally attributed the lack of follow-through to limited interest from retail accounts. The market, they said, will not be able to improve until larger accounts return.

"The market needs real buyers to get anywhere at this point, and that's what the Street is waiting for," a trader said. "The problem this week is that there

isn't much incentive for accounts to put money in the market."

Meanwhile, primary dealers, which still own a large portion of the August refunding, are unlikely to be active buyers of governments as they gear up to bid on $28 billion of new debt this week.

Indigestion from supply is not the only worry facing the bond market this week. A myriad of developments last week conspired to push prices lower across the yield spectrum and will probably continue to spook the market in coming sessions, analysts said.

Among the factors behind the declines were a weaker U.S. dollar, sharp increases in the price components of a widely watched economic survey, and higher commodities prices.

Treasuries fell sporadically last week as the greenback lost ground, raising concerns among U.S. fixed income traders that investors would avoid buying dollar-denominated assets. The sharpest dollar declines were seen against the Japanese yen, which rose after news that the U.S. trade gap with Japan widened in June. The dollar also lost ground against the German mark after the Bundesbank failed to ease monetary policy, as many market players had expected.

Late Friday, the dollar was changing hands at 98.65 yen and 1.5438 marks.

On the economic numbers front, the Philadelphia Federal Reserve's August economic survey showed large gains in both its prices-paid index and prices-received index. The prices-paid index spiked to a five-year high of 48.6 in August from 36.4 in July, while the prices-received component swelled to 24.5

from 15.8. The overall activity index registered 13.9 in August, up from 11.3 in July.

The report quickly resurrected worries about inflation and smothered the euphoria caused by Tuesday's Fed tightening. It also added to the defensive mood of the bond market that began when there was no significant follow-through to Tuesday's rally after the central bank aggressively raised short-term rates.

Further fanning inflation concerns was an increase in commodities prices. The Knight Ridder Commodity Research Bureau index of commodities futures prices continued to hover around the psychologically important 230.00 level.

This uncertain environment, the lack of fresh news, and uncertainty about the direction of the economy and interest rates will give traders and investors even less to go on this week.

On the bright side, analysts said the Fed's succeeded in regaining its credibility with the bond market. They noted that the Fed's move was a clear attempt to demonstrate that the central bank is willing to act to head off inflation even if the mainstream indicators of price pressures, such as the consumer and producer price indexes, remain well behaved.

"The belief is down the road that long-term rates will fall as inflation is kept in check by rising short-term rates," said Ken Meiselman, executive vice president at J.B. Hanauer & Co.

In Treasury futures Friday, the September bond contract ended up 3/32 at 102.26.

In the cash markets, the 6 1/8% twoyear note ended up 1/32 Friday at 99.28-99.29 to yield 6.17%. The 6 Please turn to CREDIT MARKETS page 20 7/8% five-year note closed up 1/32 at 99.27-99.29 to yield 6.89%. The 7 1/4% 10-year note closed up 1/32 at 99.28-100.00 to yield 7.25%. The 7 1/2% 30-year bond ended down 2/32 at 100.01-100.05 to yield 7.48%.

The three-month Treasury bill closed up one basis point at 4.65%. The six-month bill was down two basis points at 5.09%. The year bill was down one basis point at 5.64%.

Spreads of investment-grade corporate issues tightened by 1/8 of a point on Friday, while high-yield issues ended mixed.Treasury Market Yields Previous Previous Friday Week Month 3-Month Bill6-Month Bill 4.65 4.45 4.461-Year Bill 5.09 5.08 4.942-Year Note 5.64 5.56 5.523-Year Note 6.17 6.22 6.105-Year Note 6.53 6.58 6.427-Year Note 6.89 6.95 6.9010-Year Note 7.07 7.11 7.0630-Year Bond 7.24 7.28 7.27 Source: Cantor, Ftzgerald / Telerate

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