US Treasury debt prices rose on Friday as dealers readied for a wave of data next week but kept a wary eye on the ongoing rally in equities.
The US market played catch-up with Europe's debt market, which rallied after Thursday's weak report on the German business climate cast some doubt on a possible European Central Bank rate hike.
Bond values were boosted this week by views that the Federal Reserve is within two to four meetings of concluding its program of measured rate increases.
Still, major US equities index are at or near the highest levels since mid-2001, raising the potential of a sustained asset allocation shift into stocks from fixed-income.
The 10-year note added 12/32 in price for a yield of 4.43 percent, down from 4.47 percent on Wednesday and 4.50 percent a week ago.
Resistance held to a move below 4.41 percent in the benchmark note yield; the next target would be 4.37 percent.
Many trading desks worked with skeleton staffs in the short post-Thanksgiving session, and some dealers are already starting to close their books as the holiday slowdown looms.
Trading volume through midday was about $55 billion, down from the month-to-date daily average of $232.8 billion, according to interbank broker ICAP Plc.
A packed calendar of data and a handful of Fed speakers next week could tweak ideas on rate policy. First on the slate is October existing home sales at 10 am EST (1400 GMT) on Monday, forecast at 7.17 million units, annualised, against 7.28 million units in September.
"The market should continue to maintain a buoyant tone, particularly after another soft existing home sales number," said strategists at 4CAST Ltd.
The centerpiece of next week's schedule should be the November US payrolls report on December 2. Wall Street analysts forecast payrolls to rise by a median 210,000 and for the jobless rate to hold at 5.0 percent - a level suggesting little slack in the labour market.
Deferred Eurodollar futures ended higher, buoyed by prospects for the fed funds rate to peak some time in the first half of 2006. Futures anticipate Fed hikes in December and January, which would carry the rate to 4.5 percent.
Chances of an increase at the March Federal Open Market Committee meeting, the first under the presumed leadership of Ben Bernanke, fell to 36 percent from 42 percent on Wednesday and 68 percent a week ago.
The Fed has signalled it will become more sensitive to incoming data in setting rate policy going forward, and strong economic reports next week could ensure further rate hikes.
"We continue to believe the Fed will tighten three more times," Drew Matus, senior financial economist at Lehman Brothers, said in a research note.
The 30-year bond rose 25/32 to yield 4.66 percent, down from 4.70 percent but short of resistance at 4.64 percent. December 30-year bond futures faltered approaching 113-02/32, the session high for Monday through Wednesday.
Five-year Treasury notes rose 6/32 for a yield of 4.33 percent, down from 4.37 percent. Two-year note yields were at 4.32 percent, down from 4.35 percent.
Treasury futures activity was dominated by position-rolling from December to March contracts before the December delivery period starts on December 1.
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