Treasurys fall on dollar and stock rally
Government bonds slip as inflation concerns settle, oil falls back, and equity markets rebound.
NEW YORK (CNNMoney.com) -- Bonds sank Friday as the falling dollar, struggling stocks and rising oil of the past few sessions reversed gears.
The benchmark 10-year U.S. treasury bond fell 10/32 to 101 2/32, while it yielded 3.87% for investors, up from 3.82% late Thursday. Bond prices and yields move in opposite directions.
The 30-year long bond traded down 1/32 at 100 18/32, and its yield rose to 4.47% from 4.46%.
Meanwhile the 2-year note fell 6/32 to 100 20/32 and yielded 2.42%, up from 2.30% in the previous session.
"Bonds are down on a big rise in the stock market Friday," said Michael Cheah, bond fund manager at AIG SunAmerica. "The markets are interrelated, even if it's not always logical."
The stock market rallied, with all the major gauges well into positive territory, as the battered financial-sector stocks rebounded on rumors of a possible takeover of investment bank Lehman Brothers (LEH, Fortune 500).
That helped the dollar - which entered a virtual free fall Thursday - stage a strong rebound Friday, after a report on the United Kingdom's economy showed lower-than-expected growth.
"This market is now trading on a very short-term basis and trying to ignore the bigger picture," said Cheah. "The textbooks say one should approach investment without emotion, but in reality, the market investors trade like 9-year-old children playing soccer."
Rising stocks and gains in the dollar led investors to pay little attention to a speech Friday morning from Federal Reserve Chairman Ben Bernanke at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyo. Bernanke reiterated that ongoing problems in the financial sector are dragging on the economy.
Analysts say that economic concerns may continue to plague the markets.
"The long-term problems are still here," said Cheah. "There are ongoing problems with the housing market, and the government needs to roll out even more debt."
But Bernanke offered some good news, saying that the recent $30 retreat in oil prices has been encouraging. Oil prices tumbled more than $3 per barrel Friday, erasing part of the previous session's nearly $6 spike, as investors worried that a decline in demand will spread outside the United States. 
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