US Treasury prices hovered just above flat in sleepy Friday trade as a lack of market-moving economic news left traders looking forward to next week's chock-full data calendar.
Balanced comments from Kansas City Federal Reserve President Thomas Hoenig failed to sway the market in either direction, conforming broadly to investor sentiment on the economy and interest rates.
Hoenig said he was optimistic on US growth prospects and that core inflation should remain below 2 percent, although he cautioned that policymakers would monitor any further price increases closely.
Treasuries largely shrugged off the remarks, with the benchmark 10-year Treasury note up 2/32 in price for a steady yield of 4.47. That was still a far cry from a high of 4.76 percent hit last week.
Inflation is at the top of bond investors' list of concerns since price fluctuations are deemed the primary determinant of future monetary policy shifts from the US central bank.
Data on consumer prices due out next Friday will be key to assessing just how big of a problem inflation is likely to become for the market.
"Next week will make up for the dearth of data this week," said economists at Wachovia Securities. "Of prime import for the coming week will be the slew of inflationary indicators including the PPI, CPI, and Import Price Index."
After a disappointing jobs report last week that triggered a huge rally in bonds, dealers became reassured that the Fed would probably stick to its repeated promise of being gradual while raising interest rates.
Futures markets were reflecting as much, pricing in a less than 50 percent chance that the Fed will have to resort to a half percentage point rate increase at its next meeting in August.
While a surprise jump in core inflation could alter such expectations in a heartbeat, figures out on Friday shed little light on the matter.
Inventories at US wholesalers jumped more than expected in May, boosted by durable goods, and wholesaler sales rose at a milder pace.
Some economists saw the inventory rise as a sign of greater corporate optimism about the economy, but others suggested it was chiefly linked to higher prices.
"We're seeing a bit of a pause in consumer spending in June and it will be interesting to see how that plays out in terms of inventories because production didn't slow," said Stephen Stanley, senior market economist at RBS Greenwich Capital Markets.
Bonds did not seem too concerned either way, with two-year note yields stuck at 2.52 percent while five-year Treasuries were up 1/32 to yield 3.64 percent.
The 30-year bond gained 3/32 for a yield of 5.21 percent, against 5.23 percent on Thursday.
Equity markets got a modest boost from cheery comments from the CEO of General Electric, though the gains were tempered by concerns about profits, which on Thursday had taken stocks to six-week lows.
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