Traders also turned to stocks at the expense of safer government bonds amid signs of an economic recovery.

In late trading, the price of the benchmark 10-year note fell 19/32 to 101 11/32 and its yield rose to 3.46 per cent from 3.39 per cent late Thursday. The yield on the 10-year note is closely tied to rates on consumer loans, such as mortgages.

The government is set to sell $112 billion of Treasury notes next week, including $43 billion in two-year notes, $40 billion in five-year notes and $29 billion in seven-year notes.

strong demand

Investors' appetite for Treasurys has been strong in recent weeks despite long-term concerns that the government's record-setting pace of debt issuance could overwhelm the market. The government might be forced to increase yields on Treasurys, which would send prices lower, if investor demand starts to wane because of an oversupply.

In recent weeks, the sales have produced strong demand as many investors have not been immediately worried about inflation.

In other trading, the price of the 30-year bond fell 27/32 to 104 23/32. Its yield rose to 4.22 per cent from 4.17 per cent.

The two-year note fell 4/32 to 99 31/32, while its yield rose 1.01 per cent from 0.95 per cent.

The yield on the three-month T-bill fell to 0.07 per cent from 0.09 per cent. Its discount rate was 0.8 per cent.

The cost of borrowing between banks held steady. The British Bankers' Association said the rate on three-month loans in dollars - the London Interbank Offered Rate, or Libor - was unchanged at 0.29 per cent.