US Treasuries prices gave ground on Wednesday after a batch of solid economic data reinforced investors' tendency to pocket the giant gains of the prior session.
Atlanta Federal Reserve President Jack Guynn compounded the losses when he argued on Wednesday that interest rates were "several hundred basis points" below what might be considered neutral.
His comments were an unwelcome reminder that, gradually or otherwise, rate hikes are on the way. Short-term debt reacted with a tick lower in prices, which move inversely to yields.
On Tuesday, subdued core inflation and a benign statement from Federal Reserve Chairman Alan Greenspan on price trends conspired to push yields some 20 basis points lower.
In the aftermath of the rally analysts expected bonds to settle into a relatively narrow range until the next major event for the market - the Fed's policy setting meeting at the end of June.
Wall Street widely expects the Fed to be "measured" in its approach to monetary tightening, especially after Greenspan's own assurances to that effect on Tuesday.
The Fed's Beige Book report reviewing economic trends during April and May, published on Wednesday, largely echoed the themes of improving job conditions and manageable price pressures that have peppered policymakers' recent speeches.
But the anecdotal report's backward-looking nature made for little market impact.
Late on Wednesday, two-year notes had eased 3/32 in price, lifting yields to 2.80 percent from 2.75 percent late on Tuesday.
The benchmark 10-year note slipped 10/32, taking its yield to 4.72 percent from 4.68 percent. Its yield had dived 19 basis points on Tuesday, the biggest one-day drop since 2001.
The latest economic data were strong, but not so much that it threatened the market's new-found confidence in a measured Fed. Industrial production jumped 1.1 percent, beating economists forecasts of a 0.8 percent gain.
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