US Treasury debt prices eased slightly on Friday as some investors took profits on recent gains and others just headed home early for the weekend. It was a turbulent week for Treasuries, which fluctuated with every wave of economic data but failed to break out of a recent range.
In the end, benchmark 10-year note yields stood at 4.21 percent, essentially unchanged from Thursday and just three basis points below levels at last week's close.
Inflation data showed energy prices were definitely pushing prices higher, although their effect has yet to filter into many consumer products - a relief to bond investors.
But in the end, expectations of further gradual interest rate hikes from the Federal Reserve were unchanged, which explained the lack of a sustained market move in either direction.
The next major hurdle for bonds would be a speech from Fed chief Alan Greenspan next week. Yet even his comments are not likely to change the outlook for rates, since the market was already well-versed in central bank thinking after last week's policy statement.
"Modest additional Fed tightening lies ahead and chances are bond yields will be range-bound," economists at Citigroup said in a research note.
Range-bound certainly described the market accurately on Friday, with two-year notes off just 1/32 for a yield of 4.02 percent, up from 4.00 percent on Thursday.
Five-year notes dipped 2/32 to yield 4.08 percent, from 4.07 percent, while the 30-year bond was flat and yielding 4.42 percent.
If anything, the past two weeks have seen a gradual improvement in the outlook for government debt, with worries brewing that sky-high energy prices will eventually take a toll on US consumption and restrain economic growth.
Oil hit a record peak of $67 a barrel before backing off slightly, but most analysts had a difficult time envisioning an end to the rally.
With that in mind, the range in Treasury yields has been creeping ever lower, with bulls flirting with new levels of resistance around 4.20 percent.
"Whether the market is able to maintain its current level of bullish conviction as this testing process takes place, will be seen as a key indication of whether or not the multiyear trend of higher Treasury prices has in fact resumed," said John Kosar, president of Asbury Research.
Much would depend, as always, on the resilience of the US consumer. So far, Americans have defied all odds, shopping avidly even as they deplete their savings accounts and wrack up more debt.
Their ability to continue doing so in the face of rising gasoline costs will help determine the fate of the Treasury market for the remainder of 2005.