Bonds dip on more upbeat economic news

NEW YORK (CNNMoney.com) -- Bond prices seesawed before moving slightly lower Friday as better expected new home sales and durables readings offset technical buying.

The dollar strengthened against the euro and the yen.

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The benchmark 10-year note edged lower one tick, or 31 cents on a $1,000 note, to yield 4.88 percent, up slightly from 4.87 percent late Thursday.

The 30-year bond fell 5/32, or $1.56 on a $1,000 bond, to yield 4.98 percent, up from 4.96 percent the previous session.

Bond prices and yields move in opposite directions.

In shorter-dated debt, the five-year note was unchanged, yielding 4.92 percent, while the two-year held steady to yield 4.98 percent.

New homes sold at a stronger annual pace of 1.12 million in December, topping expectations of a pace of 1.05 million, the Census Bureau reported Friday. Economists surveyed by Briefing.com had forecast a sales pace of 1.05 million.

New home sales, however, plunged 17.3 percent in 2006, the biggest drop in 16 years.

Also weighing on bonds was the Commerce Department's report on orders for durable goods - items meant to last three years or more - which rose 3.1 percent last month versus the upwardly revised 2.2 percent rate posted in November.

Friday's numbers and reports delivered earlier this month suggesting that there is still some underlying strength in the U.S. economy has fueled speculation that the Federal Reserve will not cut interest rates any time soon.

"All this suggests there is no need for the Fed to do anything," Michael Metz, chief investment strategist at Oppenheimer & Co. in New York, told Reuters.

Rate futures on the likelihood of a Fed rate cut in the first half of this year stood at zero on Friday, the news service reported, and just above a 50 percent chance of a cut by the end of the year.

Fed policymakers will meet next Tuesday and Wednesday during their meeting next week, although Wall Street will be keeping a close eye on the accompanying statement for any clues about the timing of a long-awaited rate cut. (Full story)

In currency trading, the euro bought $1.2912, down from $1.2931 late Thursday. The dollar bought ¥121.61, up from ¥121.12 the previous session.

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