Updated from 1:03 p.m. ESTTreasuries rallied Thursday after a tame CPI reading and sharply lower Philly Fed report delivered a one-two punch to inflation fears, boosting views that the Federal Reserve is nearing the end of its rate-hike campaign. Geopolitical fears also boosted safe-haven investments, as the U.S. military launched the largest air assault in Iraq since the March 2003 invasion that ousted Saddam Hussein. And Deutsche Telekom ( DT) said it will offer $2.5 billion in debt in three parts: $1 billion in three-year notes, $500 million in five-year notes and $1 billion in 10-year notes. The benchmark 10-year note clocked its largest gain since December, up 22/32 of a point to yield 4.64%, while the 30-year bond ended the day up 30/32 to yield 4.69%. Bond prices and yields move in opposite directions. The two-year note added 4/32 to yield 4.62%, and the five-year gained 14/32 to yield 4.59%. Concerns that a rebounding economy could spark faster inflation and push rates higher have recently pushed the 10-year yield to 4.80%, the highest since June 2004; Treasuries have declined in six of the past seven weeks. But fed funds futures now price in a 67% possibility that the Fed will raise rates in May, down from near certain odds in the morning. Futures still sees 100% odds for the overnight lending rate to hit 4.75% on March 28. "Everybody's worried about inflation, and the CPI on the surface was benign," says Jonathan Lewis, a principal and bond strategist at Samson Capital Advisors. "But yields have really gone higher over the past few weeks, so it's not surprising that this information coming at the top of that range would result in higher prices. When we look back at this day a year from now, it will look like a relief rally." Lewis points out that the market has been very short, and Bulent Baygun, head of fixed-income strategy at Barclays Capital, says that the numbers going forward may be weak because January data was so abnormally strong. Friday's economic calendar includes readings on capacity utilization, industrial production and the University of Michigan's consumer sentiment report. The Department of Labor soothed rate-sensitive investors with news that the February consumer price index (CPI) rose by 0.1% in the month, in line with Wall Street forecasts, after climbing 0.7% in the previous month. More importantly, the so-called core CPI, which excludes food and energy costs, rose by 0.1%, vs. forecasts for a 0.2% gain. Core CPI grew by 0.2% in January. The Philadelphia Fed said that its manufacturing index for March fell 3.1 points to 12.3, vs. expectations for the number to dip to 13.5. The number was a pleasant surprise to the market, which was hammered Wednesday after the New York Fed's manufacturing index unexpectedly rose to 31.2 from 21 on Wednesday, vs. forecasts for a drop to 18.9, raising worries that the Philly Fed could surprise to the upside. The Philadelphia index showed that new orders and shipments posted gains and reflected continued strength, but that the employment component weighed on the headline number. Central bankers have said they are eyeing employment data for signs that the nation has hit "full employment," the greatest employment level the nation can handle before wage inflation sets in. In other economic data, initial jobless claims rose by 5,000 in the week ending March 11, to 309,000. This is higher than Wall Street's estimated 298,000 and the largest count year-to-date.