Treasuries marked their biggest weekly decline since June, after the most volatile trading period in six months.
U.S. government securities surged at the start of the week, briefly sending benchmark 10-year yields below 2 percent, as investors sought the safest securities amid a plunge in stocks.
The debt then slumped as shares rebounded and data showed unexpected strength in the U.S. economy, keeping alive speculation that the Federal Reserve will boost interest rates next month. Fed Vice Chairman Stanley Fischer, speaking on CNBC, said the central bank hadn’t decided on whether to raise its target at the next meeting.
"If the Fed really wanted to, they could go, but there are other external factors limiting their actions right now,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp.
The benchmark 10-year note yield ended Friday little changed at 2.18 percent, according to Bloomberg Bond Trader data. The 2 percent Treasury due in August 2025 climbed less than 1/8, or $1.25 per $1,000 face amount, to 98 3/8.
Reports Friday showed that while U.S. consumer purchases climbed in July and incomes improved, inflation remains tame.
The yield rose 14 basis points this week, the most since the week through June 26. Investors demanded an extra 146 basis points to own 10-year Treasuries instead of two-year notes, up from 142 on Aug. 21. Investors typically demand higher yields for longer-term securities when expectations build for quicker economic growth that could spark inflation.
Traders see a 38 percent probability the Fed will raise interest rates by or at its Sept. 16-17 meeting, up from 24 percent two days ago. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.
Treasuries volatility has surged this month, according to the Bank of America Merrill Lynch MOVE Index. The gauge jumped to 94.5 on Aug. 24, the highest since February and compared with a 12-month average of 78.6.
“We’ve seen big moves in all markets,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “A lot of investors have been caught wrong-footed. Themes have changed very rapidly.”