Despite the release of a higher-than-anticipated December inflation report, U.S. Treasury yields continue to fall.

On Thursday, the Treasury reported significant losses due to unexpectedly high inflation readings, which increased the likelihood of an interest rate cut from the Federal Reserve.

The yield on the note dropped more than 6 basis points to 3.968%, and has been hovering around the 4% mark for much of the week. The yield then shed more than 11 basis points to reach 4.256%.

Prices and yields move in opposite directions, with one basis point equal to 0.01%.

The December consumer price index exceeded expectations, with the index increasing 0.3% monthly and 3.4% yearly. Economists surveyed by Dow Jones predicted readings of 0.2% and 3.2%, respectively.

Core inflation, which excludes volatile food and energy prices, was in line with expectations. The core CPI rose 0.3% for the month and 3.9% from the year-ago period, compared to respective estimates of 0.3% and 3.8%.

Although the Federal Reserve predicted in December that it would reduce rates in small increments three times this year, minutes from the meeting published in January revealed that significant uncertainty persists regarding the direction of interest rates, and some policymakers have not ruled out the possibility of rates increasing further.

The CME FedWatch Tool indicates that markets are pricing in a 61% chance of the first rate cut occurring in March, which is more than the Fed anticipates.

The report does not indicate that the Fed needs to cut rates urgently, as written by Alexandra Wilson-Elizondo, co-CIO for Multi-Asset Solutions, Goldman Sachs Asset Management. Despite this, the report suggests that a soft landing is still possible since the market's expectations of rate cut timing have not been met.

On Friday, the producer price index, which measures inflation on a wholesale level, will be released after the CPI print.

— CNBC’s Jeff Cox and Sarah Min contributed to this report.