Treasuries traded up sharply after the morning release of a friendlier-than-expected inflation report, but ended the day unchanged after key technical levels failed to hold.

"I think what we saw was a failure to maintain any kind of bid" at price levels corresponding to the highs of Tuesday and Wednesday,

Stone & McCarthy Research Associates

Treasury market analyst John Canavan said. "We couldn't push back above those levels despite better-than-expected numbers, and that caused people to reanalyze what they wanted to do this morning. It was an if-you-can't-take-it-higher-take-it-lower kind of day."

The last of three major economic reports released this week, the June

Consumer Price Index

, fell in line with the first two in a key respect. Along with the

Producer Price Index


retail sales

reports for June, released

yesterday, it portrayed the economy as growing strongly with minimal inflation. And that, analysts reason, puts the burden on the


to explain why it should raise interest rates again at its next meeting in August. Which Fed Chairman

Alan Greenspan

may do next Thursday, when he delivers his semiannual


testimony to Congress.

The CPI was unchanged overall and up a scant 0.1% at its core, which excludes volatile food and energy prices. Economists surveyed by


had forecast a 0.1% overall gain and a 0.2% core gain, on average. A 3.2% drop in gasoline prices held the overall index down, while the core index benefited from a 0.6% decline in transportation prices and a 0.4% decline in apparel prices. In the half hour after the 8:30 a.m. EDT release, the benchmark 30-year Treasury bond rose as much as 28/32.

In analyzing why Treasuries didn't benefit in a lasting way from such friendly data,

Daiwa Securities

trader Marcello Frustaci said it's important to recognize how sharply the market rallied in advance of the releases. On Monday alone, the long bond's yield shed 9 basis points to 5.91%, chiefly on concern that troubled Argentine finances could ignite another round of capital flight from emerging markets. "If we didn't have a 3-point rally last week and then got these numbers, we would have gotten it this week," he said.

Instead, the bond ended the day unchanged at 90 23/32, its yield 5.92%.

A handful of other events diverted traders' attention over the course of the day.

On the economic slate,

initial jobless claims

climbed to 310,000 from 299,000 the previous week, but this is the time of year when temporary layoffs in the auto industry for factory retooling wreak havoc with this indicator. The

Philadelphia Fed Index

, a regional manufacturing indicator that sometimes predicts the national

Purchasing Managers' Index

, rose slightly, to 7.8 from 5.3. The report's price index rose to 16.8 from 13, but the price measures of these private manufacturing reports have been rising for several months without affecting the PPI or CPI.

The session high coincided with the pricing of the year's largest municipal new issue, a $1.6 billion deal for

Foothill/Eastern Transportation Corridor Agency

, a California toll road. Muni deals don't normally affect the Treasury market, but this was a big one, and it was a refunding. In a refunding (essentially a refinancing), an issuer uses the proceeds of a new issue to buy Treasuries that will generate income to repay older, higher-yielding bonds.

Dave Schroeder, who manages Treasury bond mutual funds for

American Century

in Mountain View, Calif., said the deal was "a well-advertised event" that the Street knew about yesterday. If Treasury traders went along for the ride up this morning as Foothill bought its bonds, it figures they would take profits as soon as the muni deal was priced at around 10:15 a.m.