NEW YORK (CNN/Money) -
Treasury prices drifted mostly lower as a lack of hard news left the market vulnerable to rumors and profit-taking after recent hefty gains.
The benchmark 10-year note slipped 7/32 to 101-25/32 with a yield of 3.78 percent, up from 3.75 percent late Thursday. The 30-year bond fell 6/32 of a point to 110-even to yield 4.70 percent, unchanged from late Thursday.
The two-year note held steady at 100-6/32, yielding 1.52 percent, while the five-year note dipped 3/32 to 99-14/32 with a yield of 2.74 percent.
News that police were searching Washington, DC, schools after a bomb threat kept investors cautious, though traders reported little in the way of actual safe-haven flows.
That put the market at the mercy of geopolitical events and particularly an ongoing battle between Pakistani troops and a cornered group of Islamist militants, possibly including al Qaeda leader Osama bin Laden's second-in-command.
"There's no data and no flows to speak of. Guess we'll be armchair traders today, watching the headlines for something to react to," one trader at a primary dealer told Reuters.
"There's still a lot of fund managers who think yields are far too low and are fighting the trend. If they can break 3.77 (percent on the 10-year note) we could see a back-up to 3.80 maybe even 3.88, but that should be the top of the range, at least until the next payroll numbers," he added.
Early Friday, yields on the benchmark 10-year note were hovering at 3.76 percent, far below the 4.10 percent level seen this time last month.
That huge drop in yields followed a dismal February payrolls report which convinced many in the market the Federal Reserve would be unable to raise interest rates for months to come, if not into 2005.
The next jobs report is due April 2 but so far few analysts are predicting a gain of much more than 100,000. That would be better than February's 21,000 but still a big disappointment at this stage of a recovery.
"Government debt markets are taking a corrective breather after recent strong gains, with the market taking profits, but the rally is not over yet," wrote an analyst at Bear Stearns in a daily research note.
"Ten-year yields are still range trading in a 3.60 percent to 3.85 percent band for the time being, but the fundamentals still remain very supportive for the positive trend to extend for some time yet."
Taiwan's head of state Chen Shui-bian and Vice President Annette Lu were injured in an assassination attempt but their condition was not critical, officials said, boosting bond prices briefly in a safe-haven play during Tokyo trading.
In the currency market, the dollar rose against the euro but traded weaker against the yen. The euro bought $1.2279, down from $1.2390 late Thursday, and the dollar dipped to ¥106.76 versus ¥106.78 late Thursday.
-- Reuters contributed to this story.
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