Treasury notes slipped in price as traders continued to seek profits and reposition portfolios in the absence of any significant economic data. The long bond ended higher with investors shifting holdings from shorter to longer-term instruments.

Yields remain near two-year lows and the yield-curve, which plots their values by the order of when they mature, is projected to flatten. The benchmark 10-year

Treasury note fell 7/32 to 105 24/32, raising its yield 3.2 basis points to 4.988%.

The 30-year

Treasury bond rose 6/32 to 112, lowering its yield 1.5 basis points to 5.424%.

Investors had other options for fresh sources of money that poured into the fixed income market. "The bond market has turned in its reaction from the direction of the stock prices to the money supply" said William Fitzgerald, managing director and chief treasury strategist at

Nuveen Investment Management

. He was referring to the new federal agency and corporate debt issues that were made available today.

The federally chartered mortgage lender Freddie Mac sold $6.0 billion in 5-year notes yielding 66 basis points over Treasuries. Media giant

Viacom

(VIA) - Get Viacom Inc. Class A Report

sold $1.65 billion of corporate bonds, with 5-, 10- and 30-year maturities yielding 175 to 200 basis points more than Treasuries. Investors bought into these higher-yielding and riskier bonds on the hope that the additional interest rate cuts that are expected to come from the

Federal Reserve will help the economy recover from its slowdown and prevent the default of much corporate debt.

Retail sales numbers released today reflect weekly improvement in the declining retail sector. But the December report, due Friday, is expected to be negative considering that auto sales finished at their lowest levels in four years. "The consensus on the growth rate of monthly retail sales is about negative .4%. If it is even more negative, the market will sell off on the information," Fitzgerald said.

He played down the significance of the energy crisis in California, which is yet to abate. "The Fed is looking at the entire banking and financial system, not just the California utilities. It sees the higher level of leverage that corporations have, and the extent of liquidity possible," Fitzgerald said. Capital spending in the last two quarters has come down into single digits and that is a source of anxiety for the central bank since slower spending has put the brakes on the economy in a fast and bold way.

Looking ahead, Fitzgerald anticipates a flattening of the interest-rate yield curve. "During the past couple of weeks, investors sold 5- and 10-year notes and bought the 2-year. It had increased the spread between the 2- and 10-year notes to 40 basis points. Now we are seeing a movement back along the curve," he said. The curve of the interest rate yields is usually upwards because the longer the time until maturity of the bond, the greater its payment based on accumulated interest.

On the top of most investors' minds is the state of the economy.

Morgan Stanley Dean Witter

yesterday wrote that slipping consumer confidence, rising jobless claims and protracted weakness in the manufacturing sector pointed towards a recession this year. Some economists have challenged that view. In his weekly

High Frequency Economics

newsletter, Ian Shepherdson wrote that stocks would struggle and the manufacturing sector would be hit, but he ruled out a recession -- defined as two consecutive quarters of economic contraction.

Fitzgerald thinks the shape of the yield curve will determine whether we have a so-called 'hard' or 'soft' landing for the economy. Since the curve flattens as interest rates fall, there should be a softer landing if the Fed cuts rates sooner rather than later. "I expect the Fed to be more aggressive in lowering rates and therefore enable a softer landing. The fed funds rate should be down by 100 basis points from its current level by the end of the year."

At the

Chicago Board of Trade

TheStreet Recommends

, the March

Treasury futures contract fell 10/32 to 105 9/32.

Economic Indicators

The

BTM-UBSW Weekly Chain Store Sales Index

(

definition |

chart ) rose 0.5% in the latest week, after a gain of 0.3% in the prior week. The index measures retail chain-store sales at seven of the largest U.S. retailers. It is now at its highest level since the week ending Aug. 12. After a lackluster sales season around Christmas, the index's rise is being attributed to favorable shopping weather in the South and the Northeast. Analysts have also been able to make an "easy" comparison to the first week of 2000, a period that was especially depressed since repeat buyers did not show up because many of them had stocked up in anticipation of the Y2K problem.

Another retail sales index, the

Redbook Retail Average

(

definition |

chart ) registered strong gains as well, once again helped by the weather and substantial markdowns on inventories. It was up 3.9% in the week ending Jan. 6. The Redbook index for January, which reflects same-store sales at a number of department store companies, is currently running 2.9% ahead of December, exceeding the 2.3% target.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 116.74 yen, up from 116.03. The euro was worth $0.9444, down from $0.9476. The dollar has generally been losing steam against the euro over the past several weeks in the face of a weakening domestic economy. For more on currencies, see

TheStreet.com's

Currencies column.

Crude oil for February delivery at the

New York Mercantile Exchange

rose to $27.64 a gallon from $27.32.

The

Bridge Commodity Research Bureau Index

rose to 228.99 from 228.56.

Gold for March delivery at the

Comex

fell to $268.50 an ounce from $269.00.