NEW YORK (CNNfn) - Treasury bonds rallied Friday, concluding a volatile week that brought yields to their lowest levels since May as concerns about a reduction in supply fueled buying.
Analysts said rumors that the U.S. Treasury is considering eliminating the 30-year Treasury bond due to higher tax receipts sparked renewed concerns about supply. A spokesman for the Treasury declined to comment on the rumors.
Shortly after 3 p.m. ET, the 30-year Treasury bond rose 1-8/32 points to 107-24/32. Its yield, which moves inversely to its price, fell to 5.70 percent -- its lowest level since May 5 -- from 5.79 percent Thursday. Ten-year Treasury notes gained 16/32 to 104-24/32, their yield falling to 5.85 percent from 5.93 percent Thursday.
With a growing federal budget surplus, the Treasury Department needs to issue less government debt to fund government operations. As a result, supply concerns have been a supportive factor for bonds since January, when the Treasury announced plans to reduce the issuance of long-term debt by as much as $30 billion.
Investors await further details of the Treasury's borrowing plans at its quarterly refunding announcement, scheduled May 3.
A coupon pass from the Federal Reserve also contributed to gains.  The central bank bought government securities with maturities ranging from Dec. 31, 2001, to Sept. 30, 2002, in a process known as a coupon pass. The action often supports prices by reducing supply.
Benign economic news
A benign U.S. employment report failed to confirm the market's worst fears
that the Federal Reserve may take aggressive action in raising interest rates. The economy created 416,000 jobs in March, up from a revised 7,000 in February, according to the Labor Department.
Although the figure showed continued tightness in the labor market, the unemployment rate was unchanged at 4.1 percent.
"The (job) numbers were very good for the market," said Richard Gilhooly, senior bond strategist at Paribas. "They reduce the probability that the Fed will tighten aggressively."
Brian Wesbury, chief economist at Griffin Kubik Stephens & Thompson, told CNNfn's market coverage it is unlikely the Fed will hike rates by a half-percentage point (50 basis points) next month. (211K WAV) (211K AIFF)
With a booming economy, analysts still expect the Fed to boost rates by a quarter-point in May. The central bank has hiked rates five times since June, each time by a quarter point, bringing the federal funds rate, the rate banks charge each other for borrowing money, to 6 percent.
Comments by Fed chief Greenspan, who spoke on technology and the "new economy," had little market impact. Earlier this week, he signaled the Fed would continue to hike rates in a gradual manner until it sees signs of a slowdown.
The week ahead
Looking ahead, analysts expect movements in the stock market to continue to have an impact on Treasurys. Treasurys benefited from a flight to quality earlier this week when investors fled a volatile stock market for the relative safety of government securities.
Next week's economic calendar includes two key inflation reports, Thursday's producer price index and Friday's consumer price index.
Tom Estes, head of fixed income at Daiwa Securities, expects the reports to reveal tame inflation. "I still don't believe we have a credible inflation story," he said.
(Click here for a look at Briefing.com's economic calendar.)
Dollar strengthens
The dollar traded at the high end of its recent ranges against the major currencies Friday. Analysts said the U.S. currency was supported by a stable U.S. equities market.
Shortly after 3 p.m. ET, the dollar traded at 105.46 yen, up from 104.72 yen Thursday, a 0.7 percent gain in the dollar's value. Meanwhile, the euro changed hands at 95.45 cents, down from 95.75 cents Thursday. 
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