Updated from 10:37 a.m. EDT
Treasuries ended Monday little changed, and the long end recovered from the previous week's sharp selloff that pushed 10-year bond yields to their highest levels since 2002.
In corporate bonds,
said it will sell $1 billion in 30-year bonds as early as this week.
Trading was light as investors face a shortened holiday week in observance of Good Friday. Passover begins at sundown on Wednesday.
Moreover, only a handful of midtier economic reports are slated. These include trade balance and business inventories reports for February, as well as March retail sales data. No economic news will be released until Wednesday.
"That leaves the U.S. trade deficit as the final economic report of any note in the coming week," a Barrington Research note says. "Given investors' recent accelerated concerns about bond rates, this should be the most closely watched report, except that it seldom gets the attention it deserves. As we've written in past reports, it is the huge and growing hoard of U.S. dollar-denominated assets in foreign hands and the manner in which it is handled that represents the biggest potential shock to U.S. interest rates."
The benchmark 10-year note added 4/32 to yield 4.97%, while the 30-year bond climbed 7/32 to yield 5.04%. The two-year note edged higher 1/32 to yield 4.89%, and the five-year rose 2/32 to yield 4.89%.
"With long rates finally higher (with core inflation measures lower), the
job has become a bit easier, i.e., the long end is not fighting as much the Fed's effort to tighten," writes David Ader, U.S. bond market strategist at RBS Greenwich Capital, in a research note.
"We're not sure how this unfolds. Does it mean the Fed is more comfortable pausing at 5%, or does it force the issue and overshoot? These are not tradeable thoughts for today, this week, but they do contribute to our view that rates are closer to their peak," he writes. "In the meantime, we cannot ignore the reality that higher yields have not inspired buying, and so, until they do or the data turns, we lean to the bearish side."
A handful of speeches by Federal Reserve officials will keep the market squarely focused on interest rates, including remarks Tuesday from Dallas Fed President Richard Fisher and Minneapolis Fed President Gary Stern.
With regard to the fed funds rate, Fed Governor Susan Bies said Monday, "It's not a slam-dunk how much further we're going."
In her speech to a bankers' group in Naples, Fla., she struck a more dovish tone than St. Louis Fed President William Poole, who said late Friday that a 5.25% fed funds rate "sounded reasonable."
The fed funds futures contract shows that traders are certain that the central bank will take the overnight lending rate to 5% at its May 10 meeting. Fed funds futures show 54% odds that the rate will go to 5.25% at the next meeting on June 29, up from about 30% last week.
Treasury prices, which move in opposition to their yields, sank to new depths Friday after the March payrolls report and the ISM non-manufacturing index showed signs of robust employment activity. Soaring commodities prices also added to the bearish attitude, since precious metals are often seen as a hedge against inflation. And higher oil prices fueled fears, since economists have been waiting for more than a year to see if high fuel prices would finally lift core inflation numbers.
Bond traders loathe inflation because it erodes the value of fixed-income assets.
Fed policy makers are debating whether the jobless rate has fallen so far that it could spark wage inflation. The Federal Open Market Committee has raised the benchmark fed funds rate 15 straight times since 2004, to 4.75% last week. The central bank hopes to bring borrowing costs to a level that lets the economy grow without stoking inflation.
In an interview Friday with
, Poole also said that while he's unsure about how high rates should go, he wouldn't tighten based on strong job growth alone.
"There are pockets of tightness in both the physical capacity and the labor market, but there are a lot of other places where there's a lot of excess capacity," Poole said.
Economists within the central bank disagree on when strong employment gains will finally ramp up economic activity and spark wage inflation.
Poole believes that the relationship between inflation and the unemployment rate is very weak. In a recent speech, he said: "There's room for employment to grow and scope on the upside without there being inflation consequences."