US government bond prices eased Friday but pulled off their lows as dour consumer sentiment and a withering stock market put a floor under safe-haven Treasurys.
Bonds trimmed losses briefly after news that a cargo ship contracted by the US military fired warning shots in the Gulf at small boats believed to be Iranian.
Wall Street lost its early optimism after a report showing an index of consumer confidence hit a 26-year low in April. The stock market's slide brought some buyers back into the Treasury market after an earlier sell-off had pushed yields to 3-month highs.
"Now we're watching stocks," said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.
Benchmark 10-year notes fell 6/32, pushing the yield up to 3.86 percent from 3.84 percent late on Thursday.
The 30-year long bond slid 11/32, lifting its yield to 4.57 percent from 4.55 percent late on Thursday.
Two-year notes were flat on the day in price, yielding 2.41 percent. A sell-off in earlier overseas trade had pushed two-year yields above 2.50 percent, their highest since the middle of January.
Short-dated Treasurys are currently on track for their worst month in more than two decades, based on JPMorgan's government bond index of 1- to 3-year maturities.
The rout in the bond market has come as investors curtailed bets on further rate cuts from the Federal Reserve.
The central bank has slashed borrowing costs by 3 percentage points since September in response to a credit crisis that erupted last year.
Overall, bond yields are still at fairly low levels, and so is the federal funds rate target, now at 2.25 percent, set by the central bank.
The recent retreat pushed two-year yields this week above the Fed's federal funds target, its main policy rate, for the first time since the middle of 2006.
Friday's losses were driven by renewed worries over rising global price pressures after Japan reported annual inflation hit a decade high of 1.2 percent in March on soaring energy costs.
The news punished Japanese and euro-zone government bonds, with Treasurys following suit, and is particularly troubling, considering that rising food prices have developed into a global crisis.
Concerns about food security mounted this week as rice prices hit records in Asia and the United States warned that staples for the world's hungry were getting much more expensive.
Anger over high food and fuel costs in recent months has sparked protests in several countries, not a friendly backdrop for inflation-averse fixed-income markets.
Adding to the bond market's losses, a heavy load of government bond auctions this week swamped the market with additional supply of Treasurys.
"It seems to be one of those situations where the whole market is looking for some reason to trade off. Even the US market is talking about Japanese inflation," said Thomas di Galoma, head of US Treasury trading at Jefferies & Co in New York.