US Treasury prices flat

US Treasury debt prices ended little changed on Friday in choppy trade after data showing anaemic economic growth offset inflation that remains above the Federal Reserve's presumed target level. Bonds initially got a boost from a government report showing US economic growth in the first quarter was the weakest in four years.
However, buying soon faded as players shifted their focus to figures within the report showing higher-than-expected inflation. The inflation number prompted traders to trim expectations of Fed rate cuts. "This market does not know where to go," said Ted Ake, head of bond trading with Mizuho Securities USA in New York.
Stock market gains helped to temper any drag on bonds from the inflation reading. The Dow Jones industrial average climbed to record highs for a third straight session amid stronger-than-expected earnings. Benchmark 10-year notes traded unchanged in price for a yield of 4.70 percent. Bond yields and prices move inversely.
The government's advance, or initial, estimate of first quarter GDP showed a 1.3 percent increase against a 2.5 percent rise in the fourth quarter of 2006. The median forecast among economists polled by Reuters was a 1.8 percent gain.
The core personal consumption expenditures (PCE) index, the Fed's preferred inflation gauge, was running at 2.2 percent, above an expected 2.1 percent increase and the 1.8 percent increase in the fourth quarter. The Fed's presumed target level for inflation is between 1 percent and 2 percent.
"Today's GDP report highlights the growing tensions between growth and inflation expectations," said John Silvia, chief economist at Wachovia Securities in Charlotte, North Carolina.
A government report on employment costs, issued on Friday, showed first-quarter wages and salaries grew 1.1 percent, the largest percentage gain since the first quarter of 2001. Investors see wages as a potential source of inflation.
The rising stock market weighed on bonds through the week, despite existing and new homes sales data that suggested the worst may not be over for the flagging US homes market.
Two-year notes traded flat in price for a yield of 4.66 percent, while five-year debt was 1/32 higher in price for a yield of 4.59 percent from 4.61 percent late on Thursday. Thirty-year bonds were flat in price for a yield of 4.89 percent.