U.S. Treasurys fell Friday after firm economic data eroded expectations of a bond-friendly Federal Reserve rate cut this month and rebounding stocks sucked cash out of the safe-haven debt market.
A fairly solid retail sales report convinced investors the consumer sector might remain a bulwark against a more pronounced economic slowdown driven by the housing slump.
On the inflation front, the picture was mixed, with new data showing muted growth in core producer prices. Overall, however, they rose more than expected during September, which added to inflation worries among some.
The data also added to recent doubts that the Fed would follow September's aggressive half-percentage-point rate cut with more easing this month, weighing on bond prices that had earlier factored in more monetary stimulus.
"I've got to go with what the market is telling us, which is that it is becoming less and less likely that the Fed is going to ease again at the end of October," said Jerry Webman, chief economist and director of fixed income with Oppenheimer Funds in New York.
"It's not impossible but the odds are lower than we sure thought they were a couple of weeks ago."
That was exactly the signal sent by two-year Treasury notes, which are particularly sensitive to changing views on future Fed moves. Two-year notes fell 4/32 in price for a yield of 4.20 percent.
Benchmark 10-year notes fell 7/32 in price for a yield of 4.67 percent, versus 4.64 percent late Thursday.
The day's data capped a week of increasing uncertainty over the interest rate outlook, starting with last Friday's unexpectedly resilient jobs report and followed by Tuesday's inconclusive set of minutes from the Fed's Sept 18 policy meeting.
There were other mixed elements in Friday's data, with an unexpectedly gloomy turn in consumer sentiment, measured by the Reuters/University of Michigan Surveys of Consumers.
Taken together, however, analysts said the releases did not reflect an economy that was screaming for immediate monetary stimulus.
"The data itself argues that the Fed is not going to be easing in October," said Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York.
Five-year notes slid 5/32 in price for a yield of 4.38 percent from 4.35 percent, while 30-year bonds tumbled 10/32 for a yield of 4.89 percent.