US Treasury debt prices crept higher on Monday but hovered in a narrow range, a trend traders predicted could last until the Federal Reserve meets to determine monetary policy at the end of the month.
Durable goods and jobless data are due later in the week, but these are unlikely to alter the market's conviction that the Fed will raise its benchmark federal funds rate a quarter percentage point at its next policy meeting on June 29-30.
Building inflationary pressures remained the market's central concern, with investors convinced that the speed of Fed tightening would hinge on the pace of price increases.
"There's no question inflation is rising," said Christopher Low, chief economist at FTN Financial. "The only debate is whether it will prove to be a temporary aberration or something that has to be grappled with for several years."
With no major economic data on hand to tilt consensus in either direction, traders turned to the day's news headlines that Iran had seized three British naval boats and arrested eight crewmen.
As a precaution, investors decided to dip into safe-haven bonds, giving prices an early lift.
That set the tone for the session and by the afternoon the 10-year note was up 7/32, lowering its yield to 4.69 percent from 4.72 percent.
That was close to the floor of its recent 4.65 percent to 4.88 percent range and a break lower would open the way to a 4.59 percent trough from May.
The two-year Treasury note firmed 3/32 in price, nudging yields down to 2.75 percent from 2.78 percent late on Friday.
As recently as March, those yields had been down at 1.45 percent.
The Treasury is set to auction around $25 billion of new two-year notes on Wednesday and, as usual, traders were anxious in case foreign central banks cut back their demand.
Indirect bidders, which include offshore central banks, took a hefty 40 percent of the last sale and anything less this time will tend to depress prices.
Five-year notes were up 5/32, allowing yields to ease to 3.90 percent from 3.94 percent on Friday.
The 30-year bond gained 4/32 for a yield of 5.37 percent.
In contrast to sentiment prevailing just a couple of weeks ago, investors seemed willing to buy into the Fed's view that inflation will not be a serious concern and that rates will rise only moderately in the coming months.
Fed Board Governor Ben Bernanke reiterated that message on Monday when he told a conference in Paris that US inflation would stabilise over the rest of the year.