U.S. Treasurys prices fell on Friday, with five-, seven- and 10-year note yields setting 22-month highs, on jitters over when the Federal Reserve is likely to begin to pare back its bond-buying program.
U.S. government bonds have been hurt alongside most assets since Fed Chairman Ben Bernanke said on Wednesday that the economy is on track for further improvement and that the U.S. central bank is likely to reduce purchases as a result.
"We see the continuation of the trend. People are clearing all fixed income paper as quickly as they can," Jason Rogan, managing director at Guggenheim Capital Markets, told CNBC.
Investors expect Federal Reserve officials to say something to curb yields' run when they speak next week. The next important level for the 10-year notes is 2.57 percent, he said.
Benchmark 10-year Treasurys last traded 30/32 lower for a yield of 2.531.
Apart from the possible clarification from the Fed next week, the yield may react to the stock market performance. If stocks gain for a few consecutive days, that may alleviate the pressure on yields, Rogan added.
Prices on the U.S. 30-year Treasury bond fell more than 1 point on Friday with its yield rising to the highest level in more than 22 months.
The 30-year bond last traded 1-2/32 lower in price for a yield of 3.583 percent, up 6.6 basis points from late on Thursday.
The Fed has been expanding its balance sheet with trillions of dollars of bond purchases since 2009 to drive down interest rates, encourage borrowing and help stimulate the economy and the labor market. Investors are now grappling with what effect it will have on markets when the Fed pulls back that stimulus.
"It's all one big unwind. That's been a negative for Treasurys as hedges are unwound," said Sean Murphy, a Treasurys trader at Societe Generale in New York.
Five-year and seven-year notes, which are the most sensitive to Fed rate policy, were again the worst performers on Friday
(Read More: Global Markets Feel the Sting of Fed's Tapering)
Treasurys were under selling pressure in late morning and yields turned higher after German bonds sold off.
"There's a tremendous amount of correlation in these markets right now, as we try to digest the new environment we're in," said David Ader, chief Treasury strategist at CRT Capital.
"I think it was a kind of illiquid Friday unwind," he said.
The notes may also come under further pressure ahead of new Treasury supply next week.
The Treasury will sell $99 billion in new coupon-bearing notes, including $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday.
Investors are struggling to determine how much further the sell-off may have to run. Benchmark 10-year notes yields rose to 2.51 percent on Friday, also the highest since August 2011, and are up from 2.21 percent before the Fed announcement and around 1.60 percent at the beginning of May.
Some traders said that a margin hike by the CME Group on Thursday in eurodollar futures, which came into effect on Friday, may also be adding to volatility.
Thin volume before a summer weekend was also cited as potentially exacerbating market moves.
Some see bonds as likely to regain a bit more stability before the July 5 release of the U.S. payrolls report for June, which will be scrutinized for further signs of economic strength and how close the Fed likely is to reducing its $85 billion monthly purchases of Treasurys and mortgage-backed securities.
"I think the move in Treasurys is probably a little overdone. I wouldn't be surprised to see the market come down and even yields decline slightly" before the report, said Gary Pollack, head of fixed income trading at Deutsche Bank Private Wealth Management in New York.
Almost all economists at primary dealers expect that the Fed will start pulling back on buying bonds by the end of this year, with many expecting it will begin in September.
The Fed bought $1.46 billion in bonds due 2036 and 2043 on Friday as part of its ongoing purchase program.
Bond volatility measures on Thursday increased to new 13-month highs as bonds were hurt by large waves of selling.
Some analysts and investors have expressed concern that the longer the Fed continues its purchases the greater the risk of market disruptions when it pulls out, potentially adding to the already volatile market moves.
The Merrill Lynch MOVE index, which estimates future volatility of long-term bond yields, increased to 96 on Thursday, up from 86.9 on Wednesday. It is up from a multi-year low of around 50 at the beginning of May.
—By CNBC with Reuters.