U.S. Treasurys yields were steady on Friday after a hectic week that saw intermediate-dated note yields rally back from two-month highs, though many analysts and traders see the debt as likely to continue to underperform longer-term bonds.
, three-year, and seven-year notes have underperformed since Federal Reserve Chair Janet Yellen said last week that the central bank could raise interest rates six months after its current bond-buying program ends, suggesting a potential rate hike as early as spring 2015.
Economic releases due out next week, culminating in Friday's employment report for March, are being awaited for signs on the strength of the economy and whether recent weakness was temporary.
"Next week is an important week because we get the first look at the data for March," said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management in New York.
"There is a big debate about the economy and how much of the weakness we've seen in the first quarter is weather related and how much is not."Employers are expected to have added 195,000 jobs in March, according to the median estimate of economists polled by Reuters.
Traders this week have taken some profits from flattening trades that benefited from weakness in intermediate-dated notes after Yellen's comments.
Investors closing out these trades likely helped the Treasury sell $96 billion in new short- and intermediate-dated debt this week.
"If the Fed is going to hike it's going to be the belly of the curve that takes the brunt of the pain as we get closer to actual hikes," said Ira Jersey, an interest rate strategist at Credit Suisse in New York.
Many investors are still positioned for further weakness in the notes, and the yield curve is seen likely to resume the recent flattening trend. Traders said the unwinding of some steepening trades contributed to recent flattening.
"The market seems to be leaning short ... the yield curve has flattened a lot, but it's still relatively steep," Jersey said. Five-year note yields were last at 1.74 percent, down from a two-month high of 1.77 percent on Monday.
The yields have increased from around 1.54 percent before Yellen's comments. Thirty-year bonds yielded 3.54 percent, after falling to 3.49 percent on Thursday, the lowest level since July. The spread between the yield on five-year notes and 30-year bonds traded at 180 basis points on Friday, after getting as tight as 179 basis points on Thursday, the flattest since 2009.
Demand for bonds heading into the quarter-end on Monday helped yields come off their session highs heading into Friday's close. Bonds had little reaction to data earlier on Friday that showed that U.S. consumer spending rose in February. Separately, U.S. consumer sentiment fell in March as consumers were less hopeful about the prospects for the overall economy, a survey released on Friday showed.
The president of the Chicago Federal Reserve Bank, Charles Evans, said on Friday that the Fed will need to keep rates at rock bottom until late 2015 and then increase them only moderately over the next year because the Fed would otherwise risk derailing a building economic recovery.
The Fed bought $1.15 billion in bonds due from 2036 to 2044 on Friday as part of its ongoing purchase program.