Updated from 12:06 p.m. ESTA trifecta of ramped-up growth in the U.S. service sector, rising inflation in Japan and higher energy prices took the wind out of Treasuries Friday, sending the yield on the benchmark 10-year note to its highest level in a year. The market will pay close attention to next week's readings on factory orders and payrolls, since recent strong readings have pushed Lehman Brothers economists to raise their fed funds rate target to 5.5% by August or September. The firm, one of the 22 primary dealers of U.S. government securities that trade with the Fed, also expects rates to hit 5% next quarter and stay at least at that level throughout the year. "It's simply a matter of the overall level of strength we see in the economy," says Drew Matus, Lehman's senior U.S. economist with a specialty in fixed-income markets. "There are no signs of a slowdown in the near term, and the economy is approaching inflation thresholds from the capacity utilization and from the unemployment sides," he says, adding that would be "enough to keep the Fed raising rates in order to contain an inflation outbreak." The benchmark 10-year note ended the day down 14/32 of a point to yield 4.69%. The yield is up 11 basis points this week, the biggest jump since the week ended Jan. 27, when it gained 16 basis points. It is also at its highest level since March 23, 2005, according to Reuters data. The 30-year bond tumbled 25/32 to yield 4.66%, the five-year lost 6/32 to yield 4.71%, and the two-year slipped two ticks to yield 4.75%. Bond prices and yields move in opposite directions. The Institute for Supply Management's services sector index for February supported claims made by Lehman and Matus that the economy is on firm footing, rising to 60.1 from 56.8 in the previous month. Wall Street forecasts had called for a rise to 58.0. Any reading over 50 implies expansion relative to the prior month.