"Dudley’s comments were relatively optimistic," said Larry Milstein, managing director of government-debt trading at R.W.

Pressprich & Co. in New York. "He’s confident inflation is going to go to target -- that from Dudley who tends to be more dovish."

Treasuries have defied expectations this year with yields dropping as investors piled into haven assets amid concern that global economic growth is slowing while inflation lags central banks’ targets. Futures suggest about 14 percent probability that the Fed will tighten policy at or before its June meeting, down from about 75 percent odds assigned by traders on Jan. 1.

Benchmark 10-year Treasury note yields increased three basis points, or 0.03 percentage point, to 1.78 percent as of 11:21 a.m. in New York. The price of the 1.625 percent security due in February 2026 fell 1/4, or $2.50 per $1,000 face amount, to 98 19/32. The yield earlier had fallen as much as three basis points.

Eoin Treacy's view

It is reasonable to assume that the Fed will not raise rates just for the sake of doing so. They will wait for evidence that the lengthy policy of extraordinary monetary accommodation has allowed the conditions for self-sustaining growth to germinate before moving aggressively. To do otherwise would be to jeopardise what they have worked so hard to achieve. 

With wages firming, the recovery in housing prices and low unemployment, the case for a bullish view on bonds has encountered more resistance than it has in quite some time. 10-year Treasury yields bounced in February from the region of 1.5% and found support above that level again today. A sustained move above 2% would confirm more than temporary supply dominance in this area.