NEW YORK (CNN/Money) -
Treasury prices were flat in late-afternoon trading Wednesday after having stumbled earlier in the session on worries of waning demand from foreign central banks.
With the dollar hitting its highs for the year, bond traders feared foreign central banks would have less need to intervene to limit gains in their currencies. That in turn would leave them with fewer dollars to invest in Treasurys, a big blow given that foreign central banks bought a net $172 billion worth of the notes last year.
At around 3:30 p.m. ET, the benchmark 10-year note dipped 1/32 of a point to 99-17/32, yielding 4.06 percent versus 4.04 percent late Tuesday. The 30-year bond fell 2/32 of a point to 106-30/32, sending its yield to 4.91 percent from 4.90 percent late in the previous session.
Benchmark 10-year yields briefly spiked as high as 4.11 percent after rumors circulated that influential research firm Medley Global Advisors had issued a report saying the Federal Reserve was laying the groundwork for a hike in interest rates, perhaps sooner rather than later.
But the market pared its losses when it became clear the talk was garbled and the actual report claimed the Fed was still months away from hiking rates.
The two-year Treasury note was little changed at 99-25/32, with a 1.73 percent yield, while the five-year note lost 1/32 of a point at 99-27/32 for a yield of 3.04 percent. Bond prices and yields move in opposite directions.
In the currency market, the dollar hit a new 2004 high against the euro and the yen earlier in the session before pulling back in late-day trade.
At 3:30 p.m. ET, the euro bought $1.2187, down slightly from the $1.2220 it purchased late Tuesday. The dollar was quoted at ¥110.09, easing off of its ¥110.12 exchange rate late Tuesday.
The bond market tried to rally when the Institute for Supply Management's services index came in lower than expected, but speculative sellers were quick to pounce, perhaps on a view that Friday's payrolls report will surprise to the upside.
The ISM's overall index of business activity dipped to 60.8 in February from a record 65.7 in January, undercutting forecasts of a pullback to 63.0. The employment component slipped to 52.7 from 53.4 in January.
"Employment slipped for the third time since November, and is now back below October levels," noted Alan Ruskin, chief economist at 4CAST. "Since weakness in services employment has dominated the soft employment trends in this cycle, this data will tend to deflate rising expectations of a decent payrolls number."
Yet speculation remains high that the February payrolls report will show a real improvement in hiring.
"We have revised upward our forecast of February nonfarm payrolls to 175,000 from 145,000 previously," said Joe LaVorgna, chief U.S. fixed income economist at Deutsche Bank Securities.
Historically, February has proved the most difficult month to forecast, with estimates missing the actual result by an average of about 133,000. February payrolls have been higher than forecast in 15 of the last 17 years, though at the same time the January result was typically revised down.
Still to come Wednesday is the Fed's latest assessment of the economy, known as the Beige Book. Any anecdotal readings on employment will be closely scrutinized, as will the Fed's take on price pressures, given the latest surge in oil and commodity costs.
-- from staff and wire reports
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