The yield on the 10-year Treasury note finished the week lower after falling the most in six months Thursday amid a brewing trade dispute between the U.S. and China.
On Thursday, President Donald Trump signed an executive memorandum that would inflict tariffs on Chinese imports — of up to $60 billion. The measures were designed to penalize the consumer nation, with the U.S. administration stating that China's trade practices had involved stealing U.S. companies' intellectual property.
Consequently, Beijing threatened to retaliate with its own set of levies. China's commerce ministry posted a statement online Friday, proposing a list of 128 U.S. products that could be possible retaliation targets.
The goods concerned would have had an import value of $3 billion last year, with fresh fruit, wine, steel pipes, modified ethanol and ginseng as mentioned examples — all would potentially have a levy of 15 percent, while a 25 percent tariff could be inflicted on U.S. pork and recycled aluminum goods.
"I think the hindsight theme is going to be about trade friction and what that will mean for Fed policy," said Aaron Kohli, interest rate strategist BMO Capital Markets. "The Fed has a dual mandate. A full-scale trade war creates tension between those two mandates when you could see rising unemployment with inflation ticking up."
But aside from trade worries, Kohli echoed fellow fixed-income commentators like Jeffrey Gundlach of DoubleLine Capital in questioning whether the economy is ready for increased borrowing costs.
"You still can't get over 3 percent on 10-year yields," Kohli added. "You'll really need to see inflation take off for demand-driven reasons. People just don't seem to want to spend."
The president ultimately signed the $1.3 trillion omnibus spending bill on Friday after threatening to veto the legislation.
On Friday, Atlanta Fed President Raphael Bostic said that with the U.S. economy at or beyond full employment, the central bank should consider hiking rates regularly to keep growth from overheating.
"If the economy evolves roughly as I suspect, I will likely support further increases over the course of the year," Atlanta Federal Reserve Bank President Raphael Bostic said in remarks prepared for delivery to the Tennessee Economic Forum.
Yields rose sharply earlier in the week after the Fed decided to hike interest rates 25 basis points, which initially sent rates toward multiyear highs. Unrevised rate hike projections for 2018, however, later dampened the move as Wall Street appeared uncertain as to whether markets could handle a higher cost of borrowing.
U.S. durable goods orders jumped 3.1 percent in February versus expectations of a 1.5 percent increase.
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, jumped 1.8 percent last month, the Commerce Department said Friday. The increase was the biggest gain in five months and followed a downwardly revised 0.4 percent decrease in January.
—CNBC's Nyshka Chandran contributed to this report