By Min Zeng 

What a difference a day makes.

U.S. government bonds had logged the biggest one-day price rally since 2011 during Thursday's session due to surging haven demand. But Friday, as an upbeat retail sales report soothed some fears over the U.S. growth outlook, the bond market posted the biggest one-day price drop since December.

"There is a lot of volatility given that how fast bond yields have moved" so far this year, said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York.

The yield on the benchmark 10-year Treasury note settled at 1.746% late Friday, compared with 1.642% Thursday. Bond yields rise as prices fall.

The yield still fell by 0.1 percentage point for the week.

The U.S. bond market will be shut Monday for Presidents Day.

Traders said negative wagers, known as shorts, on bonds were forced to unwind Thursday. In doing so, they bought back bonds, adding an impetus for lower yields.

But Friday, investors who have wagered bets on higher bond prices lightened up some of their bondholdings, pushing up yields.

Analysts caution it is premature to draw a conclusion that the tide has turned against the bond market. While bond yields have dropped sharply since the start of the year, they may still have room to fall if stocks post big drops, oil renews its decline or any sign that the U.S. economy may lose momentum, they say.

But the sharp swing underscores how the bond market is prone to sharp swings due to crowded positioning and lower liquidity.

Big banks have cut back from services facilitating transactions between bond buyers and sellers. More daily trades in the bond market are conducted via high-frequency trading firms and algorithmic trading programs, which complete orders at rapid-fire speed and typically via superfast computers.

U.S. retail sales rose by 0.2% last month, beating economists' forecasts. December sales also were revised higher.

The latest sign of resilience in consumer spending eased some fears over the U.S. growth momentum. Many investors have been concerned lately whether the world's largest economy could hold up against market turmoil, tightening financial conditions and weaker growth overseas.

"It relieves some of the unrelenting bad news versus expectations that has been the norm this year outside labor market indicators," said Jim Vogel, interest-rate strategist at FTN Financial.

The 10-year Treasury yield, an indicator of investors' sentiment toward global economic outlook, fell to 1.53% during Thursday's session, the lowest level since August 2012, within 0.15 percentage point from its all-time low set in July 2012.

U.S. bond yields have dropped more than half of a percentage point since the start of the year as global stocks and oil have posted big declines.

The list of concerns has been growing for investors: a slowdown in China, no bottom in sight for oil prices, U.S. growth vulnerable to external shocks and lately the health of big banks especially in Europe, the epicenter of negative interest-rate policy.

Meanwhile, the Federal Reserve still sticks to its tightening plan even as there is growing speculation that the central bank could stand pat this year given the market turmoil. Fed Chairwoman Janet Yellen admitted downside risks to the U.S. growth outlook Thursday, but she refrained from dropping the plan to raise interest rates.

Friday's retail sales report suggested it may be premature for investors to price out any rate increases this year, say analysts.

Should more data show the U.S. growth outlook would fare better than many investors expect, bond yields may rise further from these very low levels, they say.

Some investors say Treasury bonds offer a hedge against further declines in their riskier investments such as stocks and corporate debt.

Lower bond yields reflect the continued struggle of global investors to obtain assets that offer a good mix of safety and income. About a quarter of global government bonds are now trading with negative yields, thanks to unconventional monetary policy from a number of central banks in Europe and Japan.

U.S. Treasury bonds offer one of the highest yields in the developed world. For yield-starved investors in Asia and Europe, U.S. bonds remain a bargain. The buying from foreign investors has been one of the factors keeping U.S. bond yields at very low levels from a historical standpoint.

The U.S. government bond market continues to defy and confound bond bears.

Over the past few years, they have declared that the decline in bond yields spanning more than three decades has run its course and that yields are on course to normalize from ultralow levels.

But after a setback in 2013, bond prices have strengthened and yields have fallen. The 10-year yield traded at 3% at the end of 2013. In 2007, before the outbreak of the financial crisis, it was above 5%.

Write to Min Zeng at min.zeng@wsj.com

(END) Dow Jones Newswires

February 12, 2016 16:10 ET (21:10 GMT)