US Treasury prices slid for a fourth straight session on Friday, partly as investors unwound bets the US economy would weaken enough to prompt a slowdown in Federal Reserve rate hikes.
While the latest economic data were seen as mixed, there were enough pockets of strength to suggest the Fed will again raise interest rates when it meets in November.
As a result, investors bailed from more long bond positions taking the benchmark 10-year note down 17/32 in price while its yield rose to 4.19 percent from 4.12 percent on Thursday, leaving it 23 basis points above lows earlier this week - the biggest weekly rise since May.
"The price action has been decidedly bearish," said one trader at a US primary dealer. "Bonds couldn't get the smallest rally out of the data, which shows the market wants to sell no matter what."
Earlier on Friday, the Institute for Supply Management's manufacturing index dipped to 58.5 in September from 59.0 in August. Traders had been braced for a much stronger number after a firm Chicago-area survey released on Thursday, and bonds initially tried to bounce on the news.
But sellers were quick to pounce, just as they have been since yields stalled at 3.96 percent lows early this week.
Analysts noted that despite the September dip, the ISM index is still at a level historically associated with economic growth of 4.0 percent or more.
Other data on consumption this week confirmed spending had also picked up markedly from the second quarter and had many analysts revising forecasts for third-quarter gross domestic product to above 4.0 percent.
A jump in US vehicle sales for September certainly suggested GDP for the quarter would register on the strong side.
Industry sales rose 5.8 percent to 1.44 million vehicles for a seasonally adjusted annual rate of 17.5 million, far above the rate of around 17 million that most analysts had expected and the 16.9 million in September last year.
Bond bulls are worried that this resilience will encourage the Fed to keep raising interest rates well beyond what the market currently has priced in.
The two-year note lost was flat for a yield of 2.63 percent.
Five-year notes slipped 8/32, taking yields up to 3.43 percent from 3.39 percent. The 30-year bond shed 25/32, lifting yields to 4.95 percent from 4.90 percent.
Some of the retreat reflected investors taking profits on curve flattening trades - bets long-term yields would fall faster than those at the short-end.
As a result the curve steepened sharply, with the gap between two- and 10-year yields widening to 156 basis points from three-year lows around 144 basis points last week.
"Maybe it's not entirely the data and rather just a bad technical situation," wondered Peter McTeague, head of US government bond strategy at RBS Greenwich. "I think it's a bit of both, but there's no dismissing the heavy tone to things."
He saw the market settling into a new trading range, but it was a toss up whether it would be 3.95-4.20 percent or 4.00-4.40 percent for the 10-year note.
"It feels like death amidst lower lows and lower highs and the inability to get bouncing today will assure that 4.27 percent support gets tested," he said.
Likewise, bonds also got only fleeting support from the University of Michigan's poll on consumer confidence which showed a drop to 94.2 in September from 95.9 in August.