Treasuries were mixed as shorter maturities drew strength from the latest signs of weakness in the economy, suggesting room remains for the

Federal Reserve to continue lowering interest rates. However, the long end of the market was pressured by the lingering specter of inflation.

The bond market closed early today, but the two-year note, the security most affected by changes in monetary policy, finished up 2/32 to 99 15/32, lowering the yield to 4.285%. Yields move inversely to prices. The 10-year benchmark note was unchanged at 96 9/32, yielding 5.498%, while the 30-year Treasury bond, or the long bond, lost 5/32 to 93 8/32, with a yield of 5.856%.

"The economy is still showing a lackluster performance," said Michael Strauss, managing director and senior economist of

CommonFund

. "Last night,

Alan Greenspan alluded to that as well."

A slew of economic data released this morning kept investors on the edge their seats. Equities were lately trading off on the revised

gross domestic product report, which showed that first-quarter GDP growth was revised to 1.3%, down from an initial reading of 2%, and below the 1.4% forecast. In other economic news, the

University of Michigan's

consumer sentiment index was revised a bit lower from its preliminary report, while

durable goods orders fell 5% in April, showing business demand remains sluggish.

"The numbers we got today show that economic conditions are not getting any better in the second quarter," Strauss said. "My belief is that the notion of a second-half-of-the-year recovery has more of a fourth-quarter potential than a third-quarter potential."

Analysts believe the bond market, a good proxy for future economic conditions and the chances of inflation, has been alluding to a recovery but also higher prices. (

TheStreet.com

recently examined the

message contained in the yield spread between the two-year and 10-year note.) Inflation is especially bad for fixed-income securities like bonds, which make set payments for a certain time period. As a result, investors demand higher yields on long-term bonds than on short-term securities because over a longer period of time, inflation can have a larger effect. Therefore, the higher their expectations for inflation, the less investors will pay for bonds, and the higher the yields.

"I think the long end is voicing too much concern about inflation," Strauss said. "The long end is operating too much like Dr. Jekyll, in the sense that the economic numbers we got support Fed easing and don't support inflation."

In his speech before the

Economic Club of New York

last night, Greenspan said the central bank's five 50-basis-point reductions this year are having their intended effect on the slowing economy. But he also said the economy wasn't out of danger. The Fed chief also seemed relatively upbeat about inflation, saying "the lack of pricing power reported overwhelmingly by businesspeople underscores an absence of inflationary zest."

Laurence Meyer, a Fed governor, seemed to have a slightly different take on inflation today. Speaking at a conference in Scotland, Meyer expressed concern about the level of prices in the U.S. "Given that labor markets remain tight, that inflation remains above the rate that I would find acceptable over the longer run, and that core inflation has been edging higher," he said, "attention must also be given to calibrating the easing to avoid overshooting in the other direction in a way that ends up adding to price pressures as growth strengthens."