Treasury two-year notes snapped their longest winning streak since 1984 after Greek lawmakers reduced the risk of default by approving austerity measures and US reports showed signs of economic resilience.
Government offerings of $99 billion (Dh363.6 billion) in notes last week drew poor demand as the Federal Reserve conducted the final debt purchases under its $600 billion second round of quantitative easing.
Yields on benchmark 10-year securities rose the most in almost two years before this week's US payrolls report, forecast to show employers added more jobs in June.
"We're back to levels that are more justifiable," said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 20 primary dealers that trade with the Fed.
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"This whole flight-to-quality bid with Greece has dissipated. The data on the week were better than expected, perhaps showing signs that this was just a soft patch in the road and the second half of 2011 will be better."
Yields on 10-year notes rose 32 basis points, or 0.32 percentage point, to 3.19 per cent last week, according to Bloomberg Bond Trader prices.
The 3.125 per cent securities maturing in May 2021 fell 2 29/32, or $27.50 per $1,000 face amount, to 99 15/32
The 10-year note yields advanced Friday to 3.22 per cent, the highest level since May 19.
Their increase last week was the biggest since they climbed 37 basis points during the five days ending August 7, 2009.
Two-year note yields rose 15 basis points last week after dropping for 11 straight weeks. That was the longest stretch of decreases since September through November 1984, when the Fed had switched to cutting from raising interest rates.
Treasuries returned 2.4 per cent in the second quarter after losing 0.1 per cent in the first three months of the year, according to Bank of America Merrill Lynch indexes.
The $35 billion offering of seven-year notes held three days ago produced the lowest participation in more than two years from a class of investors including foreign central banks.
The $35 billion government offering of five-year securities on June 28 drew the lowest auction demand in a year.
A record low yield of 0.395 per cent at the $35 billion sale of two-year notes a day before that drew the weakest demand from the group including central banks since February 2008.
Treasuries also fell last week as the Fed completed on June 30 its $600 billion programme of debt buying, which was carried out to cap borrowing costs.
The central bank said after its June 21-22 policy meeting that it would maintain its policy of reinvesting principal payments from its securities holdings.
"There is definitely demand for 10-year Treasuries at 3.50 per cent or 3.60 per cent, but is there demand at 3.20 per cent, where they are now?" asked Amitabh Arora, an interest-rate strategist in New York at Citigroup, a primary dealer. "There should be a fairly swift repricing."
Bonds fell Friday after a report showed manufacturing unexpectedly grew at a faster pace.
The Institute for Supply Management's manufacturing index increased to 55.3 in June, from 53.5 in the previous month. Figures greater than 50 signal expansion.
The Institute for Supply Management-Chicago reported last week its purchasing managers' index climbed to 61.1 from 56.6 in May. The median forecast was for a drop to 54.
US employers added 89,000 jobs in June after an increase of 54,000 in the previous month, according to the median forecast of 50 economists. The unemployment rate held at 9.1 per cent, the Labour Department's payrolls report may show.
Treasury Secretary Timothy Geithner's potential departure from the administration would force Obama to assemble a new economic team as he enters a re-election campaign likely to be dominated by voter concern over jobs.
Geithner has told Obama that he's considering leaving the administration after the president reaches an agreement on the debt limit, according to a person familiar with the matter.
"I live for this work," Geithner said on June 30 at the Clinton Global Initiative in Chicago.
Athens Greece may receive as much as ¤85 billion (Dh453.5 billion) in new financing, including a contribution from private investors, in a second bailout aimed at preventing default and ending the euro-region's debt crisis, Thomas Wieser, head of the Austrian Finance Ministry's economic policy and financial markets department, said last week in Vienna.
Greece's Prime Minister George Papandreou secured passage of ¤78 billion of additional budget cuts and revenue measures needed to meet the targets of the original bailout.
President Barack Obama is trying to reach a compromise with Republican lawmakers who want spending cuts before agreeing to raise the nation's borrowing limit, currently capped at $14.3 trillion. The Treasury Department says it has until August 2 before its ability to pay the debt expires.