US Treasury prices slightly firmer

US Treasury debt prices were flat to modestly higher on Monday amid concerns of possible monetary policy tightening after a Federal Reserve official said his outlook for inflation was "discomforting."
Longer-dated government prices edged higher in what traders said was a continuation of last week's gains in a quiet market, with most players on the sidelines ahead of key data later in the week, including the October nonfarm payrolls report, expected to give a clearer picture on the economy's health.
Richmond Federal Reserve President Jeffrey Lacker, who in recent months has been the most hawkish Fed member on inflation, said the US economy can withstand further policy tightening and that his outlook for inflation was "discomforting." Lacker's remarks caused Treasuries to surrender earlier gains, with prices slipping into negative territory.
"Lacker's comments about inflation did not help the market and they are not going to be positive for bonds going forward," said Don Kowalchik, a debt strategist at A.G. Edwards & Sons in St. Louis.
Benchmark 10-year notes traded 1/32 in price for a yield of 4.67 percent, compared with 4.66 percent shortly before Lacker's initial comments and versus 4.68 percent late on Friday. Bond yields and prices move inversely.
But in contrast to Lacker's comments, Dallas Federal Reserve Bank President Richard Fisher told Reuters in an interview that he was encouraged on the inflation front and was comfortable with where the Fed was in terms of monetary policy. Fisher is not a voting member of the Fed's interest rate setting committee this year.
Two-year notes, which respond closely to expectations on Federal Reserve interest rate moves, were flat in price, yielding 4.76 percent, unchanged from late Friday.
Analysts said it was unlikely that the long-end of the curve had received some support from the Treasury Department's announcement that it expected to borrow a net $63 billion in the current quarter, far less than the $104 billion it had estimated in July. "The deficit situation does look better for now, but I don't see that as having any impact on the long-end of the market," said David Ader, Treasury market strategist at RBS Greenwich Capital in Connecticut.
The 30-year bond traded up 6/32 in price for a yield of 4.79 percent, versus 4.80 percent late on Friday. Earlier, Treasury prices held at higher levels after data showing the Fed's favoured gauge of core inflation was in line with economists' forecasts.