U.S. Treasury debt prices fell on Friday as investors grew more optimistic about prospects for the world's largest economy, moving away from safe-haven bonds and turning to other riskier assets that provide higher yields.
Long-term bond yields, which move inversely to prices, were up for a second straight week. For the month of October, however, yields were down 4.4 percent.
"In the long run, we think rates are way too low," said Hugh Lamle, president of M.D. Sass in New York. "Ultimately over the next year or two, 10-year rates will get to 3-3.5 percent, which is a serious loss for investors in the 10-year security and beyond. We would not be owning longer-term bonds at that point."
Investors were already in a risk-seeking mode going into the close of Thursday's session on reports Japanese pension funds would increase allocations to Japan's stock market. That helped Wall Street end the day on a positive note.
Treasurys, on the other hand, closed Thursday flat on the day after big gains most of the session.
Global risk appetite further grew after the Bank of Japan unexpectedly eased policy further overnight. The BoJ launched another round of quantitative easing, raising its monetary base target to an annual increase of 80 trillion yen ($724.5 billion) from 60-70 trillion yen and tripled its purchase of risk assets such as exchange traded funds (ETFs) and real estate investment trusts (REITs).
Meanwhile, in the United States, the sell-off in Treasurys accelerated after data showed U.S. wages in the third quarter recorded their largest increase in more than six years. U.S. consumer spending, however, fell for the first time in eight months in September, but that wasn't enough to dampen the market's search for yield.
Another piece of economic data also painted an upbeat picture. A separate report showed the pace of business activity growth in the U.S. Midwest accelerated more than expected in October. The Institute for Supply Management-Chicago business barometer rose to 66.2 this month from 60.5 in September, blowing past analyst expectations for a read of 60.0.
"My sense is that the U.S. economy is doing better," said David Coard, head of fixed income sales and trading, at Williams Capital Group in New York. "Even the Fed has acknowledged as much in its policy statement."
In late trading, benchmark 10-year Treasury notes were down 8/32 in price, yielding 2.335 percent. Yields hit a three-week high of 2.362 percent on Wednesday after the Fed acknowledged the strength in the U.S. economy, particularly the labor market.
U.S. 30-year bond prices also slid, down 16/32 with a yield of 3.07 percent.
"I think we will bounce around within 20-25 basis points of where we are in the 10-year, until there is a clear signal from the Fed that it will raise rates," said M.D. Sass' Lamle. "And that's because the economic data is always subject to revisions and always subject to exogenous influences."