The Treasury's string of note and bill auctions may provide the only excitement in the bond market this week.
Treasury prices improved last week as the modest gains in May producer and consumer prices defused the market's inflation fears. But once the inflation scare was out of the way, the market seemed directionless.
Analysts said prices may continue to languish within narrow ranges this week.
None of the economic statistics are likely to establish a new trend in Treasury trading. Instead, traders are looking ahead to the next set of employment and inflation numbers that will arrive in July.
The market may focus on the Senate's consideration of the deficit reduction package, but analysts are not expecting any fireworks.
"I think the Senate will hash it around, but basically pass what was given to them," said Michael Moran, chief economist at Daiwa Securities America. "It will not start to get interesting until it gets to the conference committee."
That leaves the $66.25 billion of bills and short-term notes that the Treasury will sell over the next four sessions.
The auctions begin with the weekly sale of $24 billion of three-and six-month bills today, followed by $16 billion of two-year notes tomorrow, $1 1 billion of five-year notes Wednesday, and $15.25 billion of year bills Thursday.
William Sullivan, director of money market research at Dean Witter Reynolds, said the auctions should go well. The two note sales will raise only $5.4 billion of new cash, and that amount is almost offset by the government's June 30 interest payment, he said.
Sullivan said the levels at which the securities are trading are attractive now that it's clear that the Federal Reserve will hold monetary policy steady.
One wild card this week could be the reverberations from the political upheaval in Japan, Sullivan said. On Friday, a no confidence vote against Prime Minister Kitchi Miyazawa led to the dissolution of the lower house of Parliament and a call for new elections.
If the political crisis gets out of hand, Japanese investors might decide to buy dollars and dollar-denominated assets as a safe haven, Sullivan said.
On Friday, short-term and intermediate prices ended slightly lower after a quiet trading session.
Late in the afternoon, the 30-year bond was up almost 1/8 point and yielded 6.80%, while note prices were off as much as 1/8 point.
Most of Friday's activity occurred early in the New York session, when short-term securities led the market lower.
The trigger for the selling was some tough talk about inflation from Fed Governors Wayne Angell and Lawrence Lindsey, but traders said next week's heavy supply schedule was a bigger worry for the market.
Lindsey said in a television interview that inflation was "going the wrong way," and said he now expects a 4% inflation rate this year, up from the 2.7% pace he was predicting earlier. Angell warned in a speech in Switzerland that inflation was still too high and said the Fed ought to be aiming for zero inflation.
"Their comments caused sentiment turn a little negative at the short end," said Stephen Gallagher, an economist at Kidder, Peabody & Co.
Traders said they were taking the Fed governors' comments with a grain of salt since Lindsey and Angell are the most hawkish of the policymakers.
Gallagher said Thursday's unexpectedly large increase in M2 and this week's heavy supply schedule added to the short end's concerns.
A note trader said the market had seized on the remarks because there was nothing else going on. He said the market was so thin that it had taken only a few sellers to push prices lower.
The short end's weakness spilled over into the long end on the report of an uptick in the University of Michigan's measure of consumer sentiment.
The university reportedly told its subscribers its June measure of confidence rose to 82% from the 80.3% May reading.
Prices sat near the lows established during the morning for most of the session. But the long bond perked up near the close of futures trading.
Traders said the improvement occurred when some participants decided to cover short positions ahead of the weekend.
The dollar posted big gains against the Japanese yen Friday, closing at 109.60 yen, up from 107.30 late Thursday. But traders said neither the dollar's move nor the political developments in Japan had any impact on the Treasury market.
The September bond futures contract closed unchanged at 112.
In the cash market, the 7 1/8% 30-year bond was 3/32 higher, at 104 9/32-102 11/32, to yield 4.48%.
The three-year 4 1/4% note was down 1/8, at 99 10/32 99 12/32, to yield 4.48%.
In when-issued trading, the two-year notes were offered at 4.18% and the five-year notes were bid at 5.23%.
Rates on Treasury bills were higher, with the three-month bill up two basis points at 3.06%, the six-month bill up two basis points at 3.18%, and the year bill three basis points higher at 3.37%.