By Sam Goldfarb

U.S. government bonds pulled back Friday after fresh data bolstered investors' confidence in the U.S. economy and refocused their attention on rising inflation.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.415%, according to Tradeweb, compared with 2.358% Thursday. Yields rise when bond prices fall.

The producer-price index excluding food and energy rose 0.2% in December from the previous month, according to the Labor Department, compared with the 0.1% consensus estimate.

Though not as closely watched as other inflation measures, the producer price data was another sign that prices generally are trending higher, a development that is bad for government debt because inflation chips away at bonds' fixed returns over time.

Also Friday, the Commerce Department reported that retail and restaurant sales rose a seasonally adjusted 0.6% in December from a month earlier, a result that was slightly below the official consensus estimate, but better than informal expectations that had declined heading into the release, analysts said.

Before the reports, there were already signs of a shift in the bond market. Having reached 2.6% in mid-December, the yield on the 10-year note dropped as low as 2.308% Thursday but began to climb again in the afternoon following the completion of a 30-year bond sale.

"You began to see even yesterday the market seemed to be topping out a little bit," said John Canavan, market analyst at Stone and McCarthy Research Associates in Princeton, N.J. That continued Friday "given that this morning's figures weren't enough to sustain" the recent support for bonds, he added.

The Treasury market has been buffeted by conflicting forces in recent weeks. Following November's election, many investors are expecting expansive fiscal policies from President-elect Donald Trump and a Republican-controlled Congress. Such policies could diminish the value of outstanding government debt by adding to the supply of bonds and stoking inflation.

But there is also uncertainty about what legislation can get passed through Congress and how much impact it will have on the economy.

Meanwhile, Federal Reserve officials, after raising interest rates in December for the first time since the end of 2015, have sent signals that they are ready to raise rates at a faster clip this year. However, monetary stimulus remains in place overseas, keeping government bond yields extremely low in Japan and Europe and creating an incentive for foreign investors to continue buying U.S. bonds.

"When the market is worried about rate hikes, 10-year notes trade at 2.50%, and when the money flows in here [from overseas] 10-years trade toward 2.35%," said Ray Remy, head of fixed-income trading in New York at Daiwa Capital Markets America Inc.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

January 13, 2017 12:33 ET (17:33 GMT)

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