The Treasury market ended barely changed in light trading Friday, a calm finish for a volatile week in which bond prices soared - and then plunged - after a surprisingly sharp rate hike by the central bank.
But market analysts said negative sentiment persists, with investors refraining from major moves ahead of a fresh batch of government securities due to be auctioned next week.After sharply rallying in reaction to the Federal Reserve's decision Tuesday to raise interest rates one-half percentage point, bond prices have since retreated to their prior levels.
"The momentum just faded rather quickly,"said Dan Seto, economist at Nikko Securities International Co. "There was disappointment about that."
The price of the Treasury's benchmark 301/4-year bond, which plunged more than a point Thursday, slipped another 1-32 point, or 31.25 cents per $1,000 in face value. Its yield was unchanged at 7.48 percent.
Meanwhile, prices of short-term and intermediate Treasury securities edged up 1-32 point, the Telerate Inc. financial information service reported.
Providing the sole degree of support to the Treasury market Friday was a modest recovery in the dollar, leaving the currency's value little changed for the day.
Bond prices initially slipped in early trading amid a further decline in the dollar's value against the Japanese yen and other foreign currencies, a trend that can aggravate inflation pressures in the United States.
But bond prices began rising again as the U.S. currency reversed course, benefiting from fears of central bank intervention and some positive comments on U.S.-Japan trade.
Despite the late-day recovery, some bond strategists remained dubious about the Treasury market's ability to absorb next week's government auctions of $28.25 billion in new two- and five-year notes.
Dimming prospects is lingering frustration that the Fed's sharp one-half percentage point hike failed to attract a surge in new fixed-income buyers.
Wall Street investment firms that snapped up securities in the rally, in hopes of reselling them to investors, have instead been forced to unload them at weaker prices.
Adding to negative sentiment was a report of higher manufacturing prices released Thursday by the Philadelphia Federal Reserve Bank. The number of companies paying and charging higher prices increased sharply, boosting the survey's price index to the highest reading in more than five years.
The news reignited inflation fears and sparked a steep sell-off in bonds Thursday, which erode in value from higher prices in the economy.
Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis, said investors are worried about more inflationary signs in economic reports due out next week, including updated statistics on second-quarter growth next Friday.
"I think the bond traders and portfolio managers still seem to be basically in a bearish mood, and they are trying to pick up all the economic news to support their bearish feelings," Sohn said.
The Lehman Brothers Daily Treasury Bond Index, reflecting price movements on bonds with maturities of a year or longer, rose 0.48 to 1,212.78.
Yields on three-month Treasury bills rose to 4.66 percent as the discount edged up .01 percentage point to 4.55 percent. Six-month yields fell to 5.09 percent as the discount fell .02 point to 4.91 percent. One-year yields dropped to 5.63 percent as the discount fell .02 point to 5.34 percent.
Yields are the interest bonds pay by maturity, while the discount is the interest at which they are sold.
The federal funds rate, the interest on overnight loans between banks, was quoted at 45/8 percent, down from 4 11-16 percent late Thursday.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds closed at 91 9-32, down 1/4 from late Thursday. The average yield to maturity was 6.40 percent, up from 6.38 percent.