Bonds bounce back

NEW YORK (CNNMoney.com) -- Treasury investors waded back into the market Wednesday, sending bond prices higher and yields lower, despite a robust reading on U.S. consumer spending and a bigger-than-expected increase in a key inflationary reading.

The dollar gained against the euro and the yen.

The 10-year benchmark gained 22/32, or $6.87 on a $1,000 note, to yield 5.19 percent, down from 5.29 percent Tuesday, which was its highest level in five years.

The 30-year gained 1-14/32, or $14.37 on a $1,000 note, to yield 5.26 percent, down from 5.39 percent the previous session. Bond prices and yields move in opposite directions.

The 5-year gained 10/32 to yield 5.13 percent, while the 2-year moved one tick higher to yield 5.07 percent.

Bond traders still saw buying opportunities in the Treasury market, even as the Commerce Department reported that retail sales jumped 1.4 percent in May, doubling forecasts.

Excluding autos and auto parts, which can be volatile from month to month, sales also rose a much better-than-expected 1.3 percent in May.

The Labor Department also reported a bigger-than-expected increase in import prices, a key inflationary reading, on Wednesday. Higher energy prices helped drive the increase.

Bond investors have worried recently that inflationary pressure and continued global economic growth would prompt the Federal Reserve to refrain from cutting short-term interest rates this year.

Those fears sent bond prices tumbling last Thursday, pushing the benchmark 10-year yield above 5 percent for the first time in 11 months.

The Federal Reserve reported in its "Beige Book" report Wednesday that economic activity expanded in May, with a number of regions reporting stronger growth.

The key reading on U.S. economic conditions also revealed that overall price pressures did not increase, but that there was continued weakness in the housing market.

The euro bought $1.3300, down from $1.3302 Tuesday, while the dollar bought ¥122.65, up from ¥121.68 in the previous session.

-- from staff and wire reports