By Daniel Kruger 

U.S. government-bond prices fell Friday after strong economic data and signs of a thaw in trade tensions contributed to an improvement in risk sentiment.

The yield on the benchmark 10-year Treasury posted its biggest increase in two weeks, settling at 2.783% from 2.747% Thursday. The yield has risen in nine of the past 11 trading sessions.

Yields, which rise when bond prices fall, climbed after the Federal Reserve said Friday that industrial production, a measure of factory, mining and utility output, increased a seasonally adjusted 0.3% in December from the prior month. Economists surveyed by The Wall Street Journal had expected a 0.2% gain for December.

The data was the latest to ease investor concerns of an economic slowdown, or that the Fed could raise rates faster than the economy can handle.

Fed-funds futures, which investors use to bet on the direction of central-bank interest rates, show a 3% probability that policy makers will cut rates by the end of the year, according to CME Group data. That's down from a peak of 49% early in the year.

"Positive economic data is helping the risk-on mentality," said Sean Simko, head of fixed-income portfolio management at SEI Investments. Investors also feel less need to fall back toward safe investments and are more comfortable taking risk because they have confidence in "the Fed being patient," he said.

New York Fed President John Williams said Friday that what happens with short-term interest rates and the central bank's balance-sheet drawdown will be driven this year by how the economy performs. Mr. Williams didn't offer firm guidance for the Fed's monetary-policy plans, even as he expects to see the economy do well again in 2019.

"The economy is strong, the outlook is healthy, and my number one priority is using monetary policy to keep it that way," Mr. Williams said in the text of speech prepared for delivery before a banker's group in New Jersey.

Yields also rose amid increasing investor optimism about the potential for a trade deal between the U.S. and China, analysts said. The Wall Street Journal reported Thursday that U.S. officials were discussing lifting tariffs against China as part of a plan to reach a trade agreement.

Demand for the safety of government bonds tends to retreat "any time there's a glint of hope" about a warming in trade relations between the U.S. and China, Mr. Simko said.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

(END) Dow Jones Newswires

January 18, 2019 16:42 ET (21:42 GMT)