US bonds fall on Fed tapering fears

US 10-YR
US 30-YR

U.S. Treasurys prices slid on Friday, marking the worst week in two months due to persistent fears the Federal Reserve will pare its bond purchases in September as the economy has showed signs of further improvement.

Yields on longer-dated Treasurys hit two-year highs, with the benchmark 10-year yield moving closer to the psychological 3 percent threshold, which some analysts said spurred mortgage companies to reduce Treasurys hedges that soured during this week's yield spike.

"It's a further belief that the economy is on a more sustainable path," said Jennifer Vail, head of fixed income at U.S. Bank's wealth management group in Minneapolis. "The market believes that we are closer to the end of not only bond purchases but also the end of near zero interest rate policy."

A number of investors that had bet on yield decreases on a summer lull in August, and after the U.S. Treasury ended its near-term supply, have also been stopped out of their positions, which has added to the bond weakness.

Investors in the United States and abroad have been curtailing their Treasurys exposure since May 22 when Fed Chairman Ben Bernanke first raised the notion the U.S. central bank might dial back its $85 billion monthly purchases of Treasurys and mortgage-backed securities.

On the open market, benchmark 10-year Treasury notes last traded 18/32 lower in price with a yield of 2.832 percent, up 6.7 basis points from late on Thursday.

On moderate trading volume, the 10-year yield reached as high as 2.866 percent, a level not seen since July 29, 2011, according to Reuters data.

For the week, the 10-year yield was on track to rise 25 basis points, the biggest weekly rise since mid-June when it posted its largest one-week jump since November 2001.

The 30-year bond shed about 1 point in price, yielding 3.868 percent after hitting 3.885 percent earlier, which was the highest since Aug. 4, 2011.

—By Reuters