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Two bond friendly economic reports couldn't shake concerns about what Fed Chief Alan Greenspan would say in his speech to the National Association of Business Economics in Chicago (via satellite) on Tuesday afternoon. U.S. Treasury securities were under selling pressure for a good part of the morning, and let up only after the conclusion of Greenspan's remarks, which offered no new insights into Fed thinking.

Comments by two Fed officials on Monday night compounded selling, as they reiterated earlier comments by other FOMC members indicating that the Fed would continue in its credit-tightening program, as rates are presently too low to achieve the neutral stance for which the Fed is aiming.

In his speech Greenspan addressed the housing market and the risky 'exotic' mortgages that can get people in over their heads. He added, however, that many homeowners have a sizable cushion of equity to protect them against falling home prices. He also admitted that the Fed could do nothing about a housing bubble. The benign tone of Greenspan's speech halted selling in Treasuries, except at the two-year note level that is most sensitive to rates hikes. The slight drop in Treasury yields, which move in the opposite direction of prices, had little effect on mortgage rates. Monday's Treasury sell-off sent rates up overnight and they remained elevated throughout today's session.

Confidence, New Home Sales Plunge

Consumer Confidence in September took its biggest dive in 15 years. The Conference Board reported that confidence slid to 86.6 from 105.6 in August, with the high price of energy and Hurricane Katrina leading the list of concerns. Although respondents were less optimistic about the present situation than they were last month, concerns about the future dragged the index down, with the availability of jobs high on the list of concerns. A drop in confidence would generally bolster bonds, but today the report weighed on the stock markets. History shows that sustained low confidence can lead to a pullback in consumer spending, which would ultimately affect Gross Domestic Product. Consumer spending is responsible for two-thirds of economic growth.

New home sales fell by a whopping 9.9 percent to an annualized rate of 1.24 million units in August - down substantially from the revised 1.37 million units sold in July. Interestingly, however, the median price of a new home in August was $220,300 - just slightly higher than the median price for an existing home, which came in at $220,000. This report also put pressure on the equity markets, and sent the home construction index down.

Stocks Slide on Economic News, But Regroup on Falling Oil Prices

Stocks opened to the upside, but quickly turned negative as back-to-back reports raised questions regarding the economic health of the country. Equities continued to trade down until Greenspan spoke and oil prices fell. Which was responsible for the turnaround? It's difficult to say. But after climbing in the morning, oil closed down $0.73 at $67.07 a barrel.

For the third straight session the Dow Jones 30 were fairly evenly divided between winners and losers, even though losses were heavier on the down side. Boeing led in gains with a 2.9 percent increase due to a tentative agreement with the machinists union. The only other components to add more than 1 percent were Altria and GE, with gains of 1.3 percent and 1.1 percent, respectively.

Hewlett-Packard, one of yesterday's stars, fell close to 2 percent - indicative of a troubled technology sector. Intel and Pfizer shed 1.6 percent each, and Merck lost 1.4 percent. GE was also among the heaviest hit, shedding 1.2 percent. Exxon also closed down due to a slide in oil prices and a downgrade.

The Nasdaq composite popped into positive territory, but lost traction and turned negative before the closing bell. Tech bellwethers were pretty well divided between winners and losers, with Sun Microsystems taking the biggest hit - a 2.8 percent loss. Intel was down along with Cisco Systems, which lost 1.1 percent. JDS Uniphase continues to amaze, today adding 8.5 percent. It was the only bellwether to post a gain in excess of 1 percent.

At closing:

The Dow 30 Industrial Index rose 12.58 points (+0.12 percent) to 10,456.21; the Nasdaq Composite index fell 5.04 points (-0.24 percent) to 2,116.42, and the benchmark Standard & Poor's 500 Index gained 0.03 points (0.00 percent) to 1,215.66.

The 30-year Treasury bond rose 5/32 in price with the yield falling to 4.55 percent from 4.56 percent on Monday.

The 10-year Treasury note rose 2/32 with the yield falling to 4.28 percent from 4.30 percent on Monday.

The 5-year Treasury note held steady in price with the yield remaining at 4.11 percent.

At 4 p.m. EDT, AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year Conventional Fixed-Rate Mortgage was at 5.68 percent from 5.637 percent at Monday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.245 percent from 5.239 percent at Monday's close.

Coming Up:

A report on advance orders for Durable Goods in August is on tap for Wednesday. A key economic indicator, it monitors willingness to spend on big-ticket items by both businesses and consumers. Analysts are expecting orders for durables to increase by 0.9 percent, which would be a healthy rebound from the 4.9 percent loss they suffered in July.

The slight decline in Treasury yields, which mortgage lenders use as a base to set rates, will not likely send rates back down. But it might be enough to keep them from escalating, at least until the Durable Goods report comes in. Better-than-expected orders would put pressure on Treasuries, while a weak number might spur a small rally.

Carolyn Siegel

carolyn@interest.com

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