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Updated from 11:18 a.m. EST

Treasuries closed Monday little changed after remarks from two

Federal Reserve

officials failed to give the traders new insights on the economy or when the central bank will stop raising interest rates.

The benchmark 10-year note was little changed from late Friday, yielding 4.37%. The 30-year bond gained 1/32 to yield 4.56%, still nearly flat on the previous session. Bond prices and yields move in opposite directions.

The two-year was unchanged, yielding 4.35%, with the spread between the 10- and two-year closing the gap created last week. The five-year edged higher 1/32 to yield 4.31%.

"After rallying for the last couple of months or so, the market is waiting for the next data point to push them one way or the other," said John Derrick, director of research with U.S. Global Investors.

Derrick believes that housing readings will be the most closely watched data, and that they will be particularly influential in the time period between the Federal Open Market Committee's January and March meetings.

Interest rate futures now show a 96% chance that the Fed will raise rates to 4.50% at its Jan. 31 meeting, and a 56% chance it will raise by another 25 basis points at the March 28 meeting.

"Once the Fed finally comes around to the fact that housing is beginning to slow, the hikes will end," said Derrick.

In a speech titled, "Now Is the Time to Strengthen Our Economic Foundation," Atlanta Fed President Jack Guynn said: "I think the outlook remains quite favorable for 2006, and I expect we'll enjoy a solid economic expansion for a third straight year."

However, Guynn, a FOMC voting member, would not make any definite statements about the rate-hike action.

"While our policy direction has been quite clear over the past 18 months, in the less certain period ahead it's my personal opinion that as policymakers we should resist the temptation to say more than we know at any given time," he said. "I think it's appropriate that our post-meeting statements have come with the caveat that 'the Committee will respond to changes in economic prospects as needed.'"

Kansas City Fed President Thomas Hoenig said that core inflation is expected to remain stable near 2% and that job growth will slow moderately, but with regard to monetary policy would only say that it was at the low end of a neutral range.

"The interesting thing about this cycle is that its seems the Fed has learned from the past that it has gone too far with tightening at the end of the cycle ... right when the economy was at a turning point," says Alan De Rose, a bond trader with CIBC World Markets. "They're trying to adjust for that and not hit the brakes too hard at the end. I think that

today's Fed speakers are going to talk about how any future moves are data-dependent."

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No closely watched economic reports are set for release until Wednesday, when figures are released for the trade deficit, initial jobless claims and the Treasury budget.

De Rose forecast that Decembers reports on retail sales and producer prices, due out Friday, will be "reasonable numbers."

"January may be the last rate hike. And that would give the Fed an opportunity to see how the economy will evolve," he added.

Supply may weigh slightly on bond traders in the next few days, as large amounts of corporate and government debt will hit the market this week.

In an upcoming auction of five-year notes and 10-year Treasury inflation-protected securities, or TIPS, the Treasury said it will sell $13 billion in five-year notes on Wednesday and $9 billion in 10-year TIPS on Thursday.

As with previous sales, traders will closely monitor the participation of foreign buyers, because foreign investors own about half of all U.S. government bonds on the market.

China, the second-largest foreign holder of Treasuries, last week hinted that it would diversify its foreign currency reserves away from the dollar, sparking worries that bonds could tumble if foreign central banks stop pouring money into U.S. debt.

The Treasury sold $18 billion worth of three-month bills Monday, which 4.15% with a bid-to-cover ratio of 2.25. It also sold $16 billion worth of three-month bills that drew 4.25% with a cover of 2.50.

Freddie Mac


sold $1 billion worth of one-month and $2.5 billion of three-month bills.

Fannie Mae


said it will sell $2 billion of three-month and $1 billion of six-month bills on Wednesday.

New corporate debt issues include Credit Immobilier,

Goldman Sachs

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, European Investment Bank and

Johnson Controls

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