NEW YORK (CNNfn) - Treasury bond prices plunged Friday, breaking nine consecutive sessions of gains, on fears the Federal Reserve will hike rates aggressively to cool the sizzling economy.
Analysts said the impact of the Federal Reserve's minutes of its February monetary policy meeting, released Thursday afternoon, continued to weigh, as some of the Fed officials supported a half-percentage point hike.
"People are afraid the Fed will have to be more aggressive," said Will Jarosak, head of finance at Fuji Securities. "It spooked everyone."
Shortly after 3 p.m. ET, the 30-year bond fell 1-5/32 points to 103-18/32. Its yield, which moves inversely to its price, rose to 5.99 percent from 5.91 percent Thursday. Ten-year Treasury notes dropped 25/32 to 102-8/32, their yield rising to 6.18 percent from 6.08 percent Thursday.
FOMC minutes have lingering effect
The recent rally in 30-year bonds came to a halt Friday as rate hike fears once again undermined the market. Analysts attributed the jitters to the Federal Open Market Committee (FOMC) minutes of its February meeting. The minutes revealed a few members of the committee, the central bank's policy-making arm, pushed for a half-point rate hike in order to slow economic growth.
With the U.S. economy in a record period of expansion, the Fed increased short-term interest rates by a quarter point in February and again Tuesday. It continued its "gradual" tightening cycle than began in June, and Tuesday's action marked the fifth hike. Fed Chairman Alan Greenspan has repeatedly signaled the committee would hike rates until it sees signs of a slowdown.
The belief is widespread the Fed will boost rates when it meets May 16 and in late June. "It (the FOMC minutes) makes the probability of more tightening ahead that much greater," said Mike McGlone, analyst at IBJ Lanston Futures.
The effect of the minutes was more pronounced in shorter-dated maturities, such as two-year notes, due to their sensitivity to changes in monetary policy.
Agency bonds recover
Agency bonds such as Fannie Mae and Freddie Mac regained momentum Friday on the heels of their sell-off this week after U.S. Treasury undersecretary Gary Gensler Friday calmed investors' concerns about the government's policy toward government-sponsored enterprises (GSEs), or agency securities.
In a statement, Gensler said "My testimony on Wednesday is consistent with long-standing administration principles in this area..."
On Thursday, Treasury bonds rallied from "flight to quality" trades when market participants re-allocated money to government securities out of agency bonds. The activity was sparked by Gensler's testimony before Congress Wednesday in which he supported a bill that would effectively diminish the perception that agency securities are fully backed by the government.
Economic news shrugged off
A weaker-than-expected February U.S. durable goods report was largely discounted. New orders for durable goods, or big-ticket items, fell 2.3 percent against a revised 2.2 percent drop in January, according to the Commerce Department. The decline was the largest monthly drop since April 1999 and greater than the flat reading forecast by analysts polled by Briefing.com.
Nor did a coupon pass from the Fed provide support. Early in the session, the central bank bought government securities with maturities ranging from June 30, 2002 to May 31, 2003 in a process known as a coupon pass, which usually lifts Treasury prices by reducing supply.
Elsewhere, investors await Monday's meeting of the Organization of Petroleum Exporting Countries (OPEC). Analysts expect OPEC to increase production levels. Oil prices have tripled since the organization dramatically cut production one year ago. The higher prices, which hint of inflation, have weighed on Treasurys.
In New York, May crude oil futures last traded up 65 cents at $27.96 a barrel.
Dollar slips
The dollar fell against the major currencies Friday. Shortly after 3 p.m. ET, the dollar changed hands at 106.99 yen, down from 107.27 yen Thursday, a 0.3 percent loss in the dollar's value.
Meanwhile, the euro traded at 97.55 cents, up from 97.17 cents Thursday, a 0.4 loss in the dollar's value. 
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