U.S. debt prices slid on Thursday after an auction of 30-year bonds saw cautious bidding in the wake of Fed monetary easing the previous day, with better-than-expected jobs data also eroding Treasurys' safe haven appeal.
The Treasury sold $13 billion of 30-year bonds at a high yield of 2.917 percent, and yields in the open market for Treasurys rose for a third straight session.
With somewhat weaker than average demand, the auction tailed — in other words, the yield came in higher than markets had been expecting.
"It would be safe to characterize it as a mixed result," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut. "The street didn't want to participate."
U.S. 30-year bonds gave up gains right before the auction to turn negative after the results, off 2/32 to yield 2.899 percent.
"It's just unfortunately not as stellar an auction" as other recent sales, said William O'Donnell, head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut.
"The tail indicates that where people wanted to buy was close to the cheapest levels yesterday, not where we were," he added.
Prices were also undermined by data showing claims for unemployment benefits were lower than expected in the latest week, eating away at appetite for Treasurys as a safe haven.
"The main surprise is the fall in initial claims, which suggests the labor market might be improving a bit quicker than expected, and that would mean the unemployment rate might reach the Fed's new target a bit quicker than some people think," said David Sloan, an economist at 4Cast Ltd in New York.
Investors were also still digesting a new round of monetary stimulus announced by the Federal Reserve on Wednesday, when the bank took the unprecedented step of saying interest rates would remain near zero until the U.S. unemployment rate falls to at least 6.5 percent.
Analysts said market reaction was contained as investors mulled what to make of the announcement. But many predicted tying monetary policy more explicitly to economic data would make markets vulnerable to price swings.
The benchmark 10-year Treasury note traded down 5/32 to yield 1.720 percent, marking the highest yield in more than a month and up from a high yield of 1.65 percent in an auction of $21 billion of the notes on Wednesday.
The U.S. central bank previously said it expected to hold rates near zero through at least mid-2015.
Analysts said any U.S. Treasury sell-off was limited by concerns over whether U.S. lawmakers will agree on a deal to avoid a $600 billion mix of spending reductions and expiring tax cuts set to begin in 2013.
Such worries were underscored by Fed Chairman Ben Bernanke on Wednesday, who warned that running over this "fiscal cliff" would lead to a new recession. He told reporters the Fed could ramp up its bond buying "a bit" but emphasized that monetary policy has limits and could not fully offset the impact.
The Treasury sold $32 billion of three-year notes on Tuesday and $21 billion of 10-year notes on Wednesday. Next week it will sell two-year, five-year and seven-year notes as well as five-year Treasury inflation-protected securities.