NEW YORK (CNNMoney.com) - Bond prices rallied Thursday afternoon on signs of mild inflation and the release of fresh manufacturing data.

The dollar slipped against the euro and yen.

The benchmark 10-year Treasury note rose 21/32 to 98-27/32 to yield 4.65 percent, down from 4.73 late Wednesday.

The 30-year bond rose 30/32 to 96-28/32, yielding 4.70 percent, down from 4.75 percent in the previous session. Bond prices and yields move in opposite directions.

The five-year note climbed 13/32, yielding 4.60 percent, and the two-year note was up three ticks, yielding 4.62 percent.

After climbing earlier in the session, Treasury prices surged after the Philadelphia Federal Reserve Bank released its Mid-Atlantic manufacturing index, which came in at 12.3, below expectations of 14.0 and missing the February reading of 15.4.

Bonds had rallied earlier in the day after the release of February's Consumer Price Index (CPI). Known as a key measure of inflation, CPI rose only 0.1 percent following a 0.7 percent increase in January. The reading fell in line with forecasts by economists surveyed by Briefing.com.

The more closely watched core CPI, which excludes often volatile food and energy prices, rose 0.1 percent, which was less than the 0.2 percent increase forecast by economists, as well as the 0.2 percent rise seen in January.

Treasury investors fear inflation since it erodes the value of the fixed-income investment.

Bond prices had rallied earlier in the week primarily on Tuesday's retail sales figures.

Investors also took stock of a Census Department report that showed that housing starts, which is the initiation of foundation-digging for a new home, slowed to an annual rate of 2.12 million in February, down from January's huge 2.28 million rate.

The Labor Department also reported that new claims for U.S. jobless benefits edged up by 5,000 last week to 309,000 in the week ended March 11, the highest since late December, from a revised 304,000 the prior week.

Economists had expected jobless claims to dip to 299,000 from the 303,000 originally reported for the week ended March 4.

Thursday's economic reports were closely watched by investors as the Fed has signaled it will base its decision on future interest rate hikes on what it sees in economic data.

Fed policy-makers, due to meet later this month, are expected to raise a key short-term rate for a 15th consecutive time, to 4.75 percent. Many analysts and investors say the central bank will boost rates at least once more after that. The following Fed meeting is in May.

Some market observers speculated that the rally was also fueled by investors who opted for the safe-haven investment after the U.S. government decided to launch the largest air assault in Iraq in nearly three years.

In currency trading, the euro bought $1.2176, up from $1.2073 late Wednesday, while the dollar slipped to ¥116.87 from ¥117.26 in the previous session.

--from staff and wire reports

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