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Yields flat as inflation picks up, but stays muted

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The U.S. Treasury yield curve flattened on Friday after data showed that U.S. consumer prices rose for a second straight month in March, but were lower than a year ago.

The Labor Department said on Friday its Consumer Price Index increased 0.2 percent last month after a similar gain in February. In the 12 months through March, the CPI slipped 0.1 percent after being unchanged in February.

The data was viewed by some as a positive sign that inflation may be ticking up towards the Federal Reserve's 2 percent target. Persistently low inflation has raised doubts about whether the Fed can raise interest rates even as the job market improves.

"I think the ex-food and energy creeping toward 2 percent is a bit of a relief. People are saying with energy and the dollar leveling off we could get to the Fed's goal," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

Read MoreGreek protests as Varoufakis strikes defiant tone

But while encouraging to some, others saw the data as still not providing any solid signals that inflation will pick up.

"It's somewhat mixed, it doesn't really give us any indication that inflation is going to accelerate anytime soon," said Thomas Simons, a money market economist at Jefferies in New York.

Benchmark 10-year notes last yielded 1.86 percent, little changed from before the data. The yields rose as high as 1.91 percent immediately after the release. The curve between five-year note yields and 30-year bond yields flattened to 122 basis points, from 129 basis points immediately after the inflation data.

A string of disappointing economic indicators in recent weeks, including March's employment report, has led investors to push back expectations on when they expect the Fed to begin raising interest rates to September, or later, boosting demand for bonds.

Read MoreGerman 10-year yields fall close to 0%

Concerns about Greece have also helped Treasuries rally. The Group of 20 leading economies struck a hopeful tone on the outlook for global growth on Friday even as officials fretted that Athen's inability to strike a deal with its lenders could upset Europe's tentative recovery.

German 10-year government debt yields dropped to 0.049 percent on Friday and many expect the bonds will soon trade at negative yields.