NEW YORK (CNN/Money) - Bond prices retreated Friday after core producer inflation posted the biggest gain in six years during February, suggesting the Federal Reserve might be more aggressive in raising interest rates.

The benchmark 10-year note lost 20/32 of a point to 97-28/32 to yield 4.26 percent, up from 4.19 percent late Thursday. The 30-year bond tumbled 1-6/32 points to 110-28/32 to yield 4.65 percent, up from 4.58 percent late Thursday.

Bond prices and yields move in opposite directions.

The five-year note lost 12/32 of a point to trade at 98-12/32, yielding 3.86 percent, while the two-year lost 4/32 of a point to 99-13/32, yielding 3.44 percent.

For a bond market that had grown dangerously accustomed to subdued price increases, the 0.8 percent jump in producer costs excluding food and energy was an unwelcome wake-up call to latent inflationary pressures.

"The core rate is troublesome, it's got to be a concern," Evan Rourke, bond strategist at Popular Securities, told Reuters.

Annual growth in the core PPI accelerated to 2.7 percent, the fastest clip since 1995, and follows signs of gathering pressures from import prices. Just two days ago, Fed Chairman Alan Greenspan expressed concerns that the lower dollar was finally starting to feed through to inflation.

The data fueled another bout of profit-taking on long-term debt as investors unwound massive, recent bets on a flattening of the yield curve.

Fed funds futures were fully pricing in a June rate hike for the first time, and showing about a 10 percent chance of a larger 50-basis point interest rate hike in March.

The inflation news completely overshadowed a soft reading on U.S. consumer sentiment. The University of Michigan index of consumer confidence dipped to 94.2 in February from 95.5 the previous month. But analysts note such surveys have little correlation to actual spending habits.

"The consumer is holding steady and we're in pretty good shape," said Steve Gallagher, chief U.S. economist at SG Corporate & Investment Banking.

The bond market was also pressured by France's decision to start issuing 50-year bonds, since traders feared it could herald more longer-term issuance elsewhere and perhaps even the return of the 30-year Treasury bond.

The French move added to speculation in the U.S. bond market that the Treasury might bring back the 30-year bond after a three-year hiatus. But Treasury Secretary John Snow was quick to dismiss the idea.

Before the inflation data, bond investors had been looking for the Fed to continue to be gradual in raising rates, at least judging from the tone of Greenspan's testimony to Congress this week.

While analysts said one month's data does not immediately affect the nation's monetary policy prospects, they noted sustained price gains could tilt the central bank toward a more assertive tightening.

In currency trading, the dollar was little changed.

The euro bought $1.3063, down from $1.3075 late Thursday, while the dollar rose against the yen at ¥105.70, up from ¥105.57.

Bond market closed at around 2 p.m. ET on Friday for the 3-day President's Day holiday weekend.