Bonds slide on stock, inflation concerns

Bond prices fall as stocks appear mixed and investors remain wary of inflation.

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NEW YORK (CNNMoney.com) -- Treasury prices fell Friday for the third straight day as investors remained wary of both the recent stock market rally and future inflation.

The benchmark 10-year note fell 25/32 to 98 7/32 and yielded 4.09%, up from 3.93%, at the end of trading Friday. Bond prices and yields move in opposite directions.

The 2-year note declined 10/32 to 100 13/32 and yielded 2.65%, up from 2.49%. The 30-year long bond slid 24/32 to 95 14/32; its yield rose to 4.66% from 4.61%.

Stocks mixed. The stock market was choppy Friday, as investors mulled a slew of disappointing earnings reports from tech companies. But positive news from Citigroup (C, Fortune 500) and a continued selloff in oil has some investors keeping their money in equity.

Bond traders are unsure how to react to the rally in the stock market on Wednesday and Thursday and flucutations on Friday, said Michael Cheah, a bond fund manager at AIG SunAmerica. Cheah believes that the stock rally earlier in the week does not indicate a broader economic recovery.

Bonds are seen as a safe haven in times of economic uncertainty, and investors often shift assets depending on where sentiment lies.

"Long term, I think this equity rally is technical, and we are nowhere near the end of our problems," Cheah added. "The gravity of the losses for the financial companies is going to pull the stock market down again, and we are going to see the bond prices go back up because the economy is not rebounding yet."

Inflation fears. Bonds have also fallen lower this week as traders remain concerned about inflation, said Stephen Wescott, a partner at Sterling Financial Planning.

On Wednesday, the most recent Consumer Price Index report showed a surprising surge, with inflation growing 5% in the past year, the biggest jump in more than 17 years.

"The signs are inflation are there, and the only way to stem that is to raise interest rates," Wescott said. "The bond market is preparing itself for that."