U.S. Treasury debt prices were little changed Friday after data on jobs and manufacturing portend tougher times ahead for the economy and reinforced the notion the Federal Reserve will leave interest rates alone.
Bonds initially fell, while stocks rose after the government's July jobs report showed labor market contraction for a seventh straight month, but the 51,000 loss in jobs was smaller than forecast.
Traders, however, soon focused on the more dire aspects of the report, with the unemployment rate hitting a four-year high and a drop in average weekly hours worked.
"We are at the threshold of a recession, but we are not quite there yet," said James Swanson, portfolio manager at MFS Investment Management in Boston.
The reassessment of the jobs data reversed the rise in stocks and halted the sell-off in bonds, analysts said.
Adding to the gloom was a stagnant reading in the national manufacturing activity index from the Institute for Supply Management. The headline ISM figure of 50 in Julysuggested neither growth nor contraction in the factory sector; its components on balance pointed to weakness, analysts said.
The benchmark 10-year Treasury note's price, which moves inversely to its yield, was up 2/32 at 99-12/32 after trading between 98-29/32 and 99-19/32. The 10-year yield was last at 3.95 percent, versus 3.96 percent late Thursday.
The two-year Treasury note was unchanged in price for a yield of 2.53 percent, compared with 2.52 percent late Thursday.
The major U.S. stock indexes were down as much as 0.60 percent on the weak data, a resurgence in oil prices and disappointing company results, led by General Motors and Sun Microsystems.
Friday's figures on payrolls, manufacturing and construction spending supported the prevalent view of a fragile economy in which consumers and corporations have struggled under the weight of the housing slump and tight credit.
The recent upswing in the unemployment rate, while a bad sign for workers, bolstered the case for the Fed to keep monetary policy steady, traders and economists said.
"This takes some pressure off the Fed to raise rates to squash inflation," said Kevin Giddis, head of fixed income sales, trading and research at Morgan Keegan in Memphis.
U.S. interest rate futures suggested traders do not fully anticipate the Fed to raise the benchmark federal funds target rate, currently at 2 percent, until January.
The Federal Open Market Committee will meet next Tuesday.
Wall Street widely expects it will keep rates unchanged.
Inflation concerns, however, have not disappeared given the increase in oil Friday and hourly wages shown in the government's July jobs report, Giddis said.
Those overhanging worries, together with next week's sales of $17 billion of 10-year notes and $10 billion of 30-year bonds, have kept a lid on any sizable gains in bonds, analysts and traders said.
Among other cash maturities, five-year notes were up 2/32 in price for a 3.23 percent yield, down from 3.25 percent late Thursday, while the 30-year bond was flat to yield 4.57 percent, down from 4.58 percent Thursday.