NEW YORK (AFX) - U.S. Treasury prices settled higher Friday, capping a strong performance across the market this week.
At 5 p.m., the 10-year Treasury note was up 6/32 from late Thursday. Its yield, which moves in the opposite direction, fell to 4.84 percent from 4.87 percent.
The 30-year bond rose 8/32. Its yield fell to 4.98 percent from 5 percent.
The 2-year note rose 1/32. Its yield fell to 4.88 percent from 4.90 percent.
Yields on 3-month Treasury bills were 5.11 percent as the discount rose to 4.97 percent from 4.96 percent.
Tamer-than-expected core inflation readings and further weakness in the housing market has entrenched the perception among investors that the Federal Reserve has finished raising interest rates. Moreover, expectations of rate cuts in 2007 have grown.
'The idea that the Fed will cut in 2007 has become more of a consensus view,' as the economy shows signs of slowing, said Anton Pil, global head of fixed income at JP Morgan Private Bank in New York.
This week's decline in yields and growing forecast of rate cuts for next year has also forced investors from the sidelines and pressured some fixed-income investors such as holders of mortgage portfolios to buy Treasurys.
There isn't much to interest investors in next week's schedule, which is light on economic data releases, save for July existing- and new-home sales midweek.
'We're looking only for a slight dip in existing-home sales, but there should be an overall negative reading indicating deterioration in the market, which could propel Treasurys prices higher,' said Bernd Wuebben, senior bond market strategist at BNP Paribas.
He added that 'the bullish tone pretty fully established in the course of this week should carry over into next.'
Still, the 10-year could face a tough time accumulating further gains, with core inflation running above 2 percent on an annual basis.
For the 10-year note, inflation is a crucial ingredient of its value, given the vulnerability of fixed rate of return to rising prices over time.
JP Morgan's Pil said there is a limit to how far the 10-year yield can fall from present levels unless core inflation falls significantly.
Thus, he expects yields have room to head back towards 5 percent, a level that he thinks looks attractive for buying so long as the Fed remains on hold and doesn't need to tighten policy later this year.
With the next Fed meeting more than a month away and little data due in coming days, volumes were still very light Friday and could remain so in the coming week, traders say. The end of the summer period also often sees a decline in volumes.
Laurence Norman and Emily Barrett contributed to this article.
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