NEW YORK (CNNMoney.com) - Bonds plunged Wednesday after a key report on consumer prices came in stronger than anticipated, fueling speculation that the Federal Reserve will continue its interest rate hike campaign to keep inflation in check.

The dollar slipped against the euro and the yen.

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The 10-year note fell 22/32 to 100-16/32, yielding 5.06 percent, up from 4.96 late Tuesday. The benchmark yield continued to remain below the yield on the two-year note, resulting in an inverted yield curve.

Yield curve inversions in the past have been considered possible signs of impending recessions, but that is considered less reliable since the curve has inverted on and off over the last 11 months.

The 30-year bond lost 32/32 to 90-31/32 to yield 5.09 percent, up from 5.01 the previous session. Bond prices and yields move in opposite directions.

The five-year note declined 14/32, yielding 5.03 percent, while the two-year note slipped 6/32, yielding 5.11 percent.

Treasurys tumbled after the Labor Department said the core Consumer Price Index rose 0.3 percent in May, exceeding expectations for a rise of 0.2 percent. (Full story.)

The core CPI is a closely watched inflation gauge that strips out often-volatile food and energy costs.

The government also said overall consumer prices climbed 0.4 percent, in line with estimates.

"The Fed will be concerned about this because it does show fairly broad inflation in the economy," Patrick Fearon, senior economist at A.G. Edwards & Sons in St. Louis, Missouri told Reuters.

The higher CPI core reading makes it all but certain that the central bank will hike the target for its key short-term interest rate to 5.25 percent when it meets June 28-29 and possibly keep raising rates after that.

In other economic news, the Fed released its "beige book," or summary of economic conditions, noting that energy prices were being passed along to consumers but the overall economy remained healthy, news that was expected.

Bond traders fear inflation since it erodes the value of the fixed-income paying investment.

In currency trading, the euro bought $1.2604, up from $1.2545 late Tuesday. The dollar traded at ¥115.03, down from ¥115.30 in the previous session.

--from staff and wire reports

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