U.S. Treasurys prices rose on Friday on tame inflation data likely to help the Fed keep interest rates ultra-low, but supply pressures and worries about Washington budget battles kept prices lower for the week overall.
"The crux of this report is simply that the inflationary backdrop remains very benign, providing the Fed with considerable breathing room to keep monetary policy accommodative," said Millan Mulraine, a senior economist at TD Securities in New York.
The Federal Reserve said earlier this week it will weigh inflation expectations in deciding when or if to raise rates.
"Most of these forecasts, however, are heavily influenced by actual inflation," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
The subdued inflation data and the outlook for easy monetary policy supported the case for lower rates, and benchmark 10-year notes rose 6/ 32 in price to yield 1.713 percent, down from 1.73 percent late Thursday. Thirty-year bonds were 16/32 higher to yield 2.882 percent, down from 2.90 percent.
Nevertheless, benchmark yields have risen close to 10 basis points on the week on supply pressure and uncertainty about both the long-term implications of recent Fed moves and talks in Washington to avert abrupt fiscal tightening next year.
The Treasury sold $66 billion of U.S. government debt this week and next week it will offer two-, five-and seven-year notes as well as five-year TIPS.
On Wednesday, the Federal Reserve announced a new round of monetary stimulus and took the unprecedented step of indicating interest rates would remain near zero until unemployment falls to at least 6.5 percent and longer-term inflation projections remain below 2.5 percent.
Budget squabbles in Washington helped burnish U.S. debt's safe-haven appeal, as well.
Talks between President Barack Obama and House of Representatives Speaker John Boehner over avoiding an automatic package of steep tax hikes and budget cuts next year have apparently stalled.
Analysts said on Friday that it was increasingly likely that Washington won't be able to reach a deal before the Jan. 1 deadline for the so-called "fiscal cliff."
With a deal between Democrats and Republicans looking increasingly unlikely before the end of the year, Treasurys prices are likely to continue to be supported by safe-haven interest, said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co in Seattle.
"Even if they do a partial down-payment with some type of budget cuts, that is going to be negative for the economy, which is good for bonds," Hurley said.