Treasuries Pare Gains on Bullish Beigh Book

Prices finished off their highs after the Fed's optimistic Beige Book stalled the rally

Treasuries finished higher in directionless trade. PPI and trade data had only a modest impact, reinforcing the idea that the Fed won't raise rates anytime soon.

Prices ticked higher mid-day after Fed Governor Bernanke said low rates weren't a problem and that inflation wasn't looming because the U.S. isn't at full employment. Bernanke also said the Fed has no target rate for the U.S. dollar, but admitted that a strong euro creates a "headwind" for European economies. He expects global growth will offset some of the strength of the euro.

The Fed Beige Book was generally bullish, saying the U.S. economy has kept on the recovery track in recent months, with some areas of the nation seeing faster growth than others. Most areas reported "quite favorable" conditions, but the Fed noted some regions saw "only slow or modest growth" and St. Louis called conditions "mixed."

The report says holiday retail sales were generally positive, and retailers expect continue improvement. Factory activity increased in nearly every district. Modest improvement is seen in labor markets, and wages and prices are stable, but there's concern about health-care costs. The housing market remains strong, but bank lending is subdued.

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