208670 Resource 178438 178984 178982 1215460149000 1215491710541 Controlled Tough Monday Morning for Bonds but the Afternoom Improved.

Home Mortgage Rates Flat

Treasurys higher as stocks give up gains<table cellspacing="0" cellpadding="0"><tbody><tr><td class="blmw">By Deborah Levine, MarketWatch</td></tr><tr><td class="dtmw">Last Update: 1:45 PM ET 7/7/08</td></tr></tbody></table>NEW YORK (MarketWatch) -- Treasurys advanced Monday, pushing yields lower, as U.S. stocks headed lower, increasing the appeal of the safety offered by government debt.Ten-year notes yields (UST10Y) fell 10 basis points to 3.89%. A basis point is 0.01%.The Standard & Poor's 500 Index fell 1.3% to 1,246.40. Treasurys leaned negative earlier as stocks were lower with crude oil prices declining.They remained little changed after San Francisco Federal Reserve President Janet Yellen said the fragility of the U.S. housing and bank system could further kink up financial markets before an anticipated recovery in 2009."Things could get worse before they get better," Yellen, who is not a voting member of the Fed's interest-rate setting committee this year, said in San Diego. Inflation is likely to remain "much higher" than she would like over the next few quarters until commodities prices level off, she said. "Treasurys remain under pressure, albeit only modestly, due to Yellen's concern about inflation and that the Fed will not allow a wage-price spiral to develop," said Holly Liss, a bond saleswoman at Citigroup Global Markets Inc.Avoiding a wage-price spiral, where employees are able to get pay increases to cover higher costs of living, making their employers raise prices, could be positive for bonds longer-term if the Fed can keep inflation under control.Fed Chairman Ben Bernanke and Richmond Fed Governor Jeffrey Lacker have speeches planned for Tuesday.Bonds ended a holiday-shortened week higher after the U.S. monthly jobs report showed the country lost more jobs than economists had forecast in June and the unemployment rate remains at a four-year high. Along with a report Thursday that showed the service-sector of the economy unexpectedly contracted in May, signs of continued economic weakness make it less likely the U.S. central bank will hike its 2% target overnight interest rate between banks later this year.The federal-funds futures contract for August shows a 14% chance that Fed policymakers will increase borrowing costs to 2.25% when they meet next month. A week ago, the likelihood was 29%. Traders see a 50% likelihood that the target rate will reach 2.50% by November, down from a 66% chance on June 30.Investors will be listening for any indication that "in the wake of deteriorating data, the likelihood of a hike has diminished -- perhaps merely hinting they are surprised hikes were priced in will be enough to give the front end a jolt," RBS Greenwich bond strategists said in a note.Front end, or shorter-term, debt is more sensitive to interest rate expectations because there is a smaller window of time to account for changes in rates. Two-year note yields (UST2YR) fell 13 basis points to 2.40%.The Treasury Department said it will auction $8 billion in 10-year Treasury Inflation Protected Securities, or TIPS, on Thursday. That's the same amount as at the government's last new issue of the debt.<hr /> 10 application/xml false Bond market inflation Mozilla/4.0 (compatible; MSIE 7.0; Windows NT 5.1; .NET CLR 1.1.4322; .NET CLR 2.0.50727; .NET CLR 3.0.04506.30; .NET CLR 3.0.04506.648) 127.0.0.1 127.0.0.1 aheitland 24.121.32.9 false true false false true 178975 false false true false false false true 178438 blog blogsite/BestFlagstaffHomes/web