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NEW YORK (CNN/Money) -
Bond prices fell Friday, pushing yields on the 10-year Treasury to the highest level in six months, after an early rally on the government's inflation report faded.
The dollar fell against the euro and yen.
The 10-year bond fell 5/32 of a point to 98-5/32 to yield 4.48 percent, up from 4.47 late Thursday. The 30-year bond declined 8/32 of a point to 109-26/32 to yield 4.70 percent, up from 4.69 in the previous session. Bond prices and yields move in opposite directions.
In shorter-dated debt, the five-year note lost 3/32 of a point to yield 4.34 percent, while the two-year note fell two ticks, yielding 4.26.
Bond prices rose and yields declined after investors' inflation fears were soothed, at least initially, by the government's early morning report on consumer prices for September.
The Labor Department said its consumer price index jumped 1.2 percent in September, the biggest gain in 25 years, on a steep rise in energy prices after Hurricane Katrina.
But the so-called core inflation rate, which strips out volatile food and energy prices, was relatively flat, climbing only 0.1 percent.
Economists surveyed by Briefing.com had forecast a 0.9 percent rise in overall CPI and a 0.2 percent rise in the core inflation rate.
Bond traders initially cheered the lower-than-expected rise in core inflation. Inflation hurts bonds since it erodes the value of the fixed-income investment.
But the rally was short-lived and prices turned lower, lifting the yield on the benchmark 10-year note as high as 4.53 percent -- the highest since April 8 -- as analysts said they expected the report to have little impact on the central bank's monetary policy.
"We got some good news from core inflation but it's perceived to be temporary, so we're back to focusing on the risks of inflation and Fed tightening again," Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co. in Seattle, told Reuters.
Many investors have expected high energy prices to result in higher prices for consumer goods, a primary concern recently for officials at the Federal Reserve, whose policy makers have been raising short-term interest rates in a bid to ward off inflation.
Treasury investors also digested retail sales data, which climbed 0.2 percent in September. Wall Street analysts had forecast retail sales to rise 0.4 percent in September.
Excluding automobile sales, retail sales climbed 1.1 percent, ahead of forecasts for a 0.8 percent increase, pointing to ongoing strength in the economy.
In currency trading, the dollar fell against the euro and yen.
The dollar bought ¥113.95, down from ¥114.33 late Thursday, while the euro bought $1.2086, up from $1.2033 the previous session.
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