The Commerce Department reported a 0.6 jump in sales for September, twice what the market expected. When car and gasoline sales were stripped out, the rise was just 0.2 percent, but the report overall was nonetheless strong and showed a 5 percent sales gain for the past year.

The stark spending increase "supports the view that this economy is gradually regaining its rhythm again after the jarring shocks from the subprime mortgage defaults and leveraged finance mess," said Bernard Baumohl, managing director of The Economic Group.

The Fed's monetary policy committee meets Oct. 30-31. If the economy doesn't seem to need new stimulation, it will be hard for the Fed to follow up a half percentage point decrease it ordered in September with another rate cut.

Strong gains on Wall Street and data showing higher wholesale inflation also cut demand for low-risk bonds.

The Labor Department said wholesale prices surged 1.1 percent last month, the largest gain since February. The figure also was much larger than the 0.4 percent rise expected by economists. The Treasury market abhors intlation because it eats into fixed-income assets.

The report showed wholesale inflation could become more of a problem later in the year, according to Sal Guatieri, an economist at BMO Capital Markets. "With crude oil and wheat prices hitting record highs recently, look for continued upward pressure in the months ahead," he said.

The government's consumer price index, which is more heavily followed by the bond market, comes out on Wednesday.

The benchmark 10-year Treasury note opened at 100 27/32 before the reports and closed at 100 16/32, down 11/32 on the session. Its closing yield was 4.70 percent, up from 4.69 percent on Thursday. Prices and yields move in opposite directions.

The 30-year long bond fell 17/32 from its opening at 102, ending at 101 15/32 with a 4.90 percent yield, up from 4.89 percent at Thursday's close.

The 2-year note fell 5/32 to 98 19/32 with a 4.23 yield, up from 4.19 percent a day before.

The yield on the 3-month Treasury bill rose to 4.19 percent from 4.12 percent Thursday and the discount rate advanced to 4.08 percent from 4.02 percent.

In after hours trade, slight demand for the 10-year and 30-year assets pushed their yields a touch below their 3 p.m. Eastern time closing levels. The 10-year yield inched to to 4.69 percent after the close from 4.70 percent and the 30-year yield moved to 4.89 percent from 4.90 percent.

Other reports had little impact on trade. The preliminary reading for the University of Michigan's sentiment survey for October was 82.0 down from 83.4 in September. The result was not as strong as economists expected. In August, businesses built their inventories after declines in July, according to the Commerce Department. Inventories in August grew 0.1 percent as sales dropped 0.4 percent.

Treasurys in the latest week were pressured by growing consensus that the Fed is not leaning toward an October rate cut. Minutes of the Fed's Sept. 18 meeting and recent strong labor, manufacturing and consumer data have buttressed this belief.

In prior weeks, bond investors, believing that the Fed would cut again this month drove Treasury yields lower to reflect this perception. The shift in view is forcing liquidations of Treasurys and driving yields higher.