TOKYO (AFX) - The US bond market, set to resume trading Thursday, will see high volatility in coming weeks, as safe-haven buying yields to liquidation of positions by the insurance sector, said Carl Weinberg, chief economist at High Frequency Economics. "We see a roller coaster ride in the bond markets," Weinberg said in a research note, cautioning that long-term interest rates may rise in the medium-term, after declining on safe-haven buying. The Bond Market Association yesterday recommended resuming bond trading Thursday at 8.00 am, with an early close at 2.00 pm New York time. In the near-term, "a lot of investors ... will sell equities or move money into bonds," he said, noting the initial rally in major bond markets after the attack on the World Trade Center Tuesday. But a combination of selling by insurance companies and a decline in US government debt retirement will likely follow this initial round of buying, he said. "After everyone is done buying bonds for safe haven, the insurance companies start selling them to raise cash," to pay claims, he said, adding that central banks should be ready to step in, ensuring an orderly market for the liquidation of fixed-income assets. Over time, it will also become clear that fiscal surpluses will diminish as spending rises to finance reconstruction and improving security. "We can expect defense hawks in Congress to ask for and get big increases in spending on defensive and offensive military systems, as well as on intelligence," Weinberg said. This means less federal debt reduction that previously assumed. The White House last month estimated a 158 bln usd budget surplus for the fiscal year ending this month, and a 173 bln surplus next year. With a larger outstanding supply of government debt, long term interest rates will likely rise over the medium term, Weinberg concluded.