NEW YORK (CNN/Money) -
Treasury prices were hit by a rally in the dollar and the unanimous view of three Federal Reserve officials, including Chairman Alan Greenspan, that the job market is ripe for revival.
In late Friday afternoon in New York, the dollar accelerated gains in a relief rally after a protracted period of heavy selling. The euro fell to a two-week low against the dollar at $1.2496, before trading back up to $1.2523.
The dollar rose to a two-month high against the yen to ¥109.12, surging after initial reports came out on the heightened security alert in Japan.
At around 4:00 p.m. ET, the benchmark 10-year note lost 15/32 of a point to 99-7/32 to yield 4.10 percent, up from 4.04 late Thursday. The 30-year bond shed 28/32 of a point to 106-7/32 to yield 4.95 percent versus 4.90 late Thursday.
The two-year note lost 3/32 to 100-10/32 to yield 1.72 percent, while the five-year note dropped 11/32 of a point to 99-21/32 to yield 3.08 percent. Bond prices and yields move in opposite directions.
"The key today with Greenspan was when he said it (job growth), at a venue at which he didn't have to say it," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co.
"The market can see how that paragraph (on jobs) could easily have been left out...he went out of his way to make the comment and that's what really stands out to me," he said.
St. Louis Fed President William Poole, one of this year's voting members on the Fed's monetary policy committee, said robust economic growth should generate significant gains in employment, while Board Governor Ben Bernanke said he saw the job market strengthening "considerably" this year.
Bonds came under pressure earlier when the dollar hit its highest level in over two months against the yen, after Japanese police officials said security had been tightened at hundreds of facilities around the country, including nuclear power plants and government offices, to protect against a possible attack.
No more big bucks?
Such unease would normally trigger a flight into safe-haven assets like Treasurys.
But the rise of the greenback lessened the chances that the Bank of Japan would step in to curb the yen and spend its intervention dollars on U.S. debt.
The BOJ has easily been the biggest buyer of Treasurys in the last year, scooping up $68 billion worth in January alone.
Bonds stumbled early in the day when U.S. inflation figures came in a little higher than expected, though core annual rates stayed at historic lows.
"The bond market took this report as a sign that core inflation may be bottoming and the Fed may still be in the tightening business later this year," said Cary Leahey, senior U.S. economist at Deutsche Bank Securities.
"But you probably need to see at least two out of the next three core CPI readings to be up 0.2 percent or more to say that you've bottomed," he added.
The headline consumer price index rose 0.5 percent in January compared to forecasts of a 0.3 percent rise, but much of the gain was due to higher energy prices, which are seen as more of a tax on the consumer than a sign of demand pressures.
Stripping out fuel and food prices, the CPI rose 0.2 percent, a little above the 0.1 percent expected, leaving the annual rate of core inflation at 1.1 percent, its lowest since 1966.
-- Reuters contributed to this report.
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