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US Treasury yields rally as oil firms

U.S. Treasury yields rose on Friday on optimism that Greek and European negotiators will reach a deal over the terms of Greece's bailout, and after better-than-expected growth in Germany's economy reduced demand for safe haven debt.

Greece agreed on Thursday to talk to its creditors about the way out of its hated international bailout in a political climbdown that could prevent its new leftist-led government running out of money as early as next month.

"Greece continues to hang in the balance, it sounds like the talks have been a little bit more constructive," said Sean Murphy, a Treasurys trader at Societe Generale in New York. Germany also grew by a much stronger than expected 0.7 percent in the fourth quarter of 2014, with domestic demand lifting Europe's largest economy out of its mid-year lull to take growth for the whole year to 1.6 percent and raise hopes of a strong 2015.

That news sent German government debt yields higher, which also helped push Treasury yields up. Benchmark 10-year Treasurys were last down 5/32 in price to yield 2.00 percent, up from 1.99 percent late on Thursday.

Thirty-year bond yields rose to trade at 2.62 percent Friday, after closing at 2.576 percent following an underwhelming auction.

Symbol
Yield
 
Change
%Change
US 3-MO
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US 1-YR
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US 2-YR
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US 5-YR
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US 10-YR
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US 30-YR
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Treasury yields have increased since U.S. data last Friday showed solid job growth in January and a rebound in wages, boosting expectations that the Federal Reserve may increase interest rates in the coming months.

The selloff paused on Thursday, however, after a new report showed that U.S. consumer spending barely rose in January, suggesting the economy started the first quarter on a softer note. The next large focus for the market will be the release next Wednesday of the minutes from the Fed's January meeting.

Fed Chair Janet Yellen will also testify before the U.S. Senate Banking Committee on Feb. 24. The market will be closed on Monday for the Presidents Day holiday.

The Treasury Department auctioned $16 billion in 30-year bonds at a high yield of 2.560 percent Thursday. The bid-to-cover ratio, an indicator of demand, was 2.26, well below the 2.47 recent average.

Oil is likely to continue to be in focus Friday as news of a Russia-Ukraine cease-fire, agreed Thursday, filters through to markets. Brent Crude rose to trade at $60 per barrel on Friday and U.S. crude futures were up around $1at $52.20.

Data expected includes the preliminary estimate of the University of Michigan consumer sentiment index at 10:00 a.m. ET, which is expected to remain close to the more than ten-year high reached the previous month. Also due are the latest import price figures at 08:30 a.m. ET.

Read MoreEuro zone growth beats as Germany storms ahead

In Europe, investors cheered strong gross domestic product (GDP) data, which expanded more than expected in the fourth quarter of 2014, boosted by an acceleration in Germany's growth.

Greek Prime Minister Alexis Tsipras has also agreed to meet with representatives from the European Union (EU), European Central Bank and International Monetary Fund, ahead of Monday's key Eurogroup meeting on debt talks, according to Reuters.