US government bond prices slid on Friday, reversing early gains as stocks climbed on easing inflation concerns, which sparked investor hopes of earlier Federal Reserve rate cuts than had been expected. Investors' demand for stocks and other riskier assets undermined appetite for safe-haven Treasuries, analysts said.
Major Wall Street stock indexes rebounded from Thursday's sell-off, which was the biggest drop in two months. On Friday, the Dow Jones industrial average rose 0.8 percent.
"The equity market bounce-back has drawn some attention away from Treasuries," said Matthew Moore, economic strategist with Banc of America Securities in New York. The benchmark 10-year note traded down 9/32 for a yield of 4.68 percent. Bond yields and prices move inversely.
The 30-year bond traded down 15/32 in price, yielding 4.85 percent. Earlier, weak data on US retail sales and underlying producer price inflation boosted hopes of a Fed rate cut, sparking a rally in Treasury prices that took benchmark 10-year yields to their lowest level since late March. But equities' rise then overshadowed the impact of those reports and took the steam out of Treasuries.
"We did have a bad retail sales print. That is going to make Fed cuts more likely in the perception of the market, which is going to help the stock market," said T.J. Marta, fixed-income strategist at RBC Capital Markets in New York. "Bonds had already priced in too much bad news."
Some said the flat US core producer prices reading for April merely confirmed the bond market's view that the Fed will hold rates steady for an extended period, casting the market's gaze ahead to US consumer price data due next week.
"Obviously the Federal Reserve at this point most likely is going to remain on hold through most of the coming year," said Walter Gerasimowicz, CEO of Meditron Asset Management in New York.
The two-year note - which responds closely to expectations on central bank interest rate moves - traded down 2/32 in price for a yield of 4.72 percent, compared with 4.69 percent late on Thursday. If core inflation pressures ebb over several months, it could pave the way for Fed interest rate cuts that would boost bond prices, analysts say.
On Wednesday, the Fed kept its benchmark interest rate at 5.25 percent, where it has been since last June. "We still think that if the economy continues to be this weak and inflation subsides, the Fed may cut rates before the end of the year," said Gary Thayer, chief economist at A.G. Edwards and Sons, in St. Louis, Missouri. US interest rate swap spreads were steady from the previous session.