U.S. Treasurys yields fell from two-year highs on Friday after weak housing data raised concerns that rising mortgage rates may weigh on the economic recovery, boosting demand for U.S. government debt and leading investors betting on further yield increases to cover their positions.
Sales of new single-family homes fell sharply in July to their lowest level in nine months, dropping 13.4 percent to an annual rate of 394,000 units, the Commerce Department said.
"This more than erased the increase in June. It remains to be seen how demand will be sustained at these higher mortgage rates. Clearly, it has retreated from the higher levels we saw earlier this summer," said Lindsey Piegza, chief economist with Sterne Agee & Leach in Chicago.
U.S. government debt yields have climbed to their highest levels since July 2011 as a string of encouraging economic indicators raised hopes that U.S. growth is gaining momentum, making it more likely that the Federal Reserve will begin reducing its bond purchases when it meets in September.
Benchmark 10-year Treasurys were last up 17/32 in price to yield 2.82 percent, down from two-year highs of 2.94 percent on Thursday. The yields have surged from 1.60 percent at the beginning of May.
The 30-year bond traded up 1-7/32 in price on Friday to yield 3.801 percent, from 3.876 percent late on Thursday.
Rates may come under pressure again next week as the Treasury sells $98 billion in new two-year, five-year and seven-year debt.
Many investors have sold bonds and moved to the sidelines on expectations of increased volatility heading into the Fed's meeting on September 17-18.