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U.S. Treasury debt prices fell Wednesday after a key barometer of business investment posted a surprisingly sharp gain last month, dimming fears the U.S. is in a dire recession. Benchmark

yields climbed to their highest since the start of the year after data showing new orders for long-lasting manufactured goods fell a smaller-than-expected 0.5 percent in April. Non-defense

capital orders excluding aircraft rose by 4.2 percent, marking the biggest increase since December 2007. Analysts said that while the U.S. housing market continues to struggle, the

stronger-than-expected durable goods orders was evidence that the U.S. may not be mired in a deep recession. "You strip out defense and aircraft and you had a 4.2 percent pop. It really

becomes hard to suggest that we have got a full-fledged recession here," said T.J. Marta, fixed income strategist at RBC Capital Markets in New York. Any signs of better news for the

economy is bad news for bonds, and benchmark 10-year Treasury notes were trading 14/32 lower in price for a yield of 3.98 percent from 3.92 percent late Tuesday. Ten-year yields rose to as

high as 3.99 percent, marking the highest since Jan. 2. The 2-year Treasury note was trading 3/32 lower in price for a yield of 2.57 percent from 2.52 percent. While the durable goods orders

were the immediate catalyst for the bond market sell-off Wednesday, concerns that high food and energy costs will feed inflation also weighed on government debt prices. "The durables

number was better than expected -- that, combined with the ongoing inflation concerns is seeing the 10-year note test its key 4 percent area," said Josh Stiles, bond strategist with

IDEAglobal in New York. Inflation erodes a bond's value over time, and analysts expect price pressure will force the Federal Reserve to reverse its monetary loosening campaign and to

raise interest rates before the end of the year. Investors are now looking for further market direction based on the reception of an auction of $30 billion of 2-year Treasury notes Wednesday

afternoon. Five-year Treasury notes were trading 9/32 lower in price for a yield of 3.29 percent from 3.23 percent late Tuesday, while the 30-year bond was 24/32 lower for a yield of 4.69

percent from 4.64 percent.