US government debt prices jumped on Friday as fear Greece might not avoid a messy default brought the safe-haven bid for US debt back into vogue.

Demands for steeper fiscal cuts from Greece's creditors rekindled fear that Greece would not be able to grow enough to pay its creditors, both private and public.

The pre-weekend scramble for Treasuries reversed the previous day's decline on optimism that Greece would soon receive a second bailout.

That expectation pushed the 30-year bond yield to its highest levels since late October.

"It's all about Greek headlines now.

Markets (see) another face-off and generally speaking, investors don't like being short Treasuries when these things are going on," said David Keeble, global head of interest rates strategy at Credit Agricole Corporate & Investment Bank in New York.

In the latest development, Eurogroup chair Jean-Claude Juncker set three conditions for Greece to receive a second bailout worth 130 billion euros ($170 billion).

Juncker said the Greek parliament must ratify the package when it meets on Sunday and a further 325 million euros of spending reductions must be identified by Wednesday, after which euro zone finance ministers would meet again.

Finally, Juncker said, the leaders of the coalition parties must give strong political assurances that the program will be implemented.

Facing elections as soon as April, Greece's party leaders have been loath to accept the lenders' tough conditions, which are certain to be unpopular with voters.

Markets fear that without more aid, Greece would default on its debt, causing financial chaos akin to the global credit crisis triggered by the collapse of Lehman Brothers in 2008.

The protracted and often contentious talks between Greek and European leaders have fuelled concerns about the long-term future of the euro zone and its monetary union, analysts say.

"The future seems to be almost unravelling as quickly as an elusive deal is coming together," said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey, which manages $327 billion.

Reacting to this, 10-year Treasury notes rose 22/32.

Their yields slipped below 2 percent again to 1.965 percent, up 3.5 basis points from where they stood a week ago.

The 30-year bond auctioned on Thursday was up 1-11/32 point, its yield easing to 3.11 percent, down two basis points from where they stood a week ago.

Federal Reserve Chairman Ben Bernanke said depressed house prices and sales were a serious drag on the economic recovery, a view echoed by Cleveland Fed President Sandra Pianalto, a voter this year on the Fed's policy-setting panel.

US economic data, which mainly have strengthened in recent weeks, took a back seat to news on Greek's debt deal.

But that could change next week when bond investors will absorb a large helping of fresh economic data, including the closely watched retail sales report due on Tuesday.

Economists polled by Reuters estimate retail sales rose a healthy 0.7 percent in January; 0.5 percent if January's robust auto sales are excluded.

To accurately assess the report, it will be necessary to pay attention to any revisions of November and December retail sales, said Cary Leahey, economist at Decision Economics in New York.

Copyright Reuters, 2012

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