US Treasury debt prices were narrowly mixed on Thursday as investors awaited a speech from Federal Reserve Chairman Alan Greenspan shortly. As he takes the podium, the Fed chief might be wondering about what he called the "conundrum" of persistently low long-term interest rates, which has only deepened since he first identified the trend.
The spread between 10- and two-year notes shrank on Thursday to a meager 0.15 percentage point - its narrowest since early 2001.
While Fed officials have played down the possibility that a flat yield curve portends slower growth, as it has historically, the bond market's recent gains were clearly associated with doubts about the economic outlook.
In particular, some believe rising gasoline costs will finally force US consumers to cut back on spending, and there by put a big dent on the economy's overall performance.
By the afternoon, benchmark 10-year notes had gained 3/32 for a yield of 4.16 percent, down from 4.17 percent on Wednesday. Two-year notes were down 1/32 and yielding 4.00 percent.
Given recent strides in the market, some dealers were predicting a sell-off if, barring some unlikely change of heart, Greenspan delivered his usually upbeat message on the economy.
But the topic of his speech, "Reflections on Central Banking," is rather ethereal, and most investors were not expecting his remarks - which were not due to be followed by a question and answer session - to bear directly on the market.
"Given this is a swan song for Greenspan, I think it's going to be one more of these global topics," said David Ader, Treasury market strategist at RBS Greenwich Capital. "There will be very little if anything that will give us any insight into monetary policy."
More imporant, he argued, would be minutes from the Fed's August meeting, due for release next Tuesday.
Until then, the market would flutter within a narrow range, even if that band has been creeping ever lower in recent weeks as investors bet that sky-high gasoline costs will eventually catch up with consumers.
Five-year notes were off 1/32 and yielding 4.04 percent, while the 30-year bond added 14/32 for a yield of 4.36 percent, down from 4.39 percent.
The market recently has made gains despite continued warnings from central bank officials that they are not done raising interest rates.
Chicago Fed President Michael Moskow reiterated that message on Wednesday night, saying that further monetary tightening was needed given the possible inflationary effect of high energy prices.
Moskow repeated the Fed's pledge to act if necessary to keep inflation well contained and to snuff out any sign that higher inflation expectations were starting to take root.
Whether Greenspan's speech would address such themes was yet to be seen, but until then investors would sit tight.
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