US Treasury prices fell on Friday after a surprisingly strong rise in US import prices in April fanned inflation fears and pushed benchmark 10-year yields to a fresh 4-year high, analysts said.
Economists blamed a falling dollar on April's 2.1 percent upward spike in import prices. Rising import prices make goods more expensive for US consumers and feed into core inflation, which may force the Federal Reserve to keep on raising interest rates.
"We have an explosion in gold and oil prices and a collapsing dollar that are scaring bond participants," said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis, Minnesota.
Benchmark 10-year notes, slipped 10/32 in price to yield 5.192 percent after posting a fresh four-year high just below 5.20 percent. For the week, the 10-year yield gained 8 basis points.
The 30-year bond shed 27/32 in price to yield 5.30 percent, its highest in nearly two-years.
Longer maturities are particularly vulnerable to inflation which erodes a bond's value over time.
Longer-dated Treasuries underperformed their short-dated counterparts on worries over rising inflation.
The two-to-10 year part of the Treasury curve steepened for a second day to about 19 basis points.
Two-year Treasuries were flat in price to yield 5.00 percent, matching the Fed's current rate target. Five-year notes were down 5/32 in price to yield 5.07 percent, up 3 basis points from late Thursday.
Inflation worries also may be spreading outside of Wall Street on surging gasoline prices ahead of the summer driving season, according to a closely-monitored consumer report.
The one-year inflation outlook gauge in the University of Michigan's consumer sentiment survey rose to 3.9 in early May from the final April reading of 3.3.
Signs of rising inflation were squarely on investors' mind since the Fed's policy meeting on Wednesday, as the market brushed off more bond-friendly aspects of the latest University of Michigan report and an unexpected shrinkage of the March US trade gap, traders and analysts said.
"The data have been generally supportive this week," said David Ader, government bond strategist at RBS Greenwich Capital in Greenwich, Connecticut.
However, "we have a buyer strike. It's the path of least resistance," Ader said of the market's downtrend.
Foreign investors, for example, who have been voracious buyers of US securities, were not heavy purchasers in this week's $34 billion Treasury quarterly refunding, Ader said.
Despite the bearish climate, Treasuries are poised to settle at these levels in the short term, at least until next week's data on producer and consumer inflation, analysts said.
"We should be finding a pause here in the near term," Wells' Paulsen said.