Yields on benchmark U.S. government debt hit a near eight-month high on Thursday on signs of growing doubts within the Federal Reserve on its bond-buying program and after stronger-than-expected private jobs data lifted hopes for Friday's labor figures.
While the Fed said it would keep up its stimulus program in place to boost the economy over coming months, minutes of its December meeting underscored an increasing reticence about further expanding the central bank's $2.9 trillion balance sheet.
"Several (officials) thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet," the minutes said.
Ten- and 30-year U.S. government debt sold off sharply after the document was released, with yields on the benchmark 10-year note breaking through their range of the past five months.
"I think the bottom line is that the policy is likely to be in place for a while, but the minutes seems to be raising some doubts about the commitment to the policy," said Julia Coronado, chief North America economist at BNP Paribas in New York.
"This is going to be an ongoing issue for the Fed," she added. "We're in uncharted waters."
Prices for 10-year debt were down 20/32 after the minutes to yield 1.904 percent, up from 1.84 percent late on Wednesday. Yields spiked up as far as 1.91 percent, the highest since May.
Yields on 10-year notes posted their biggest two-day rise since Aug. 14-15, when concerns over continuing deterioration in the euro zone eased following a pledge from European Central Bank President Mario Draghi to do whatever it would take to preserve the euro.
Ten-year U.S. debt is considered a benchmark for a number of borrowing instruments, including mortgage rates.
Prices for 30-year debt traded 1-15/32 lower after the minutes to yield 3.118 percent, from 3.04 percent late on Wednesday, also touching an eight-month high
Those losses added to a slide earlier in the day after the ADP Employment Report showed private-sector employers added 215,000 jobs in December. Economists surveyed by Reuters had been looking for a gain of 133,000 jobs.
"There's an undeniable improving trend in the employment figures showing through in ADP and we've been seeing that in the non-farm private payrolls as well. That's in keeping with the overall picture of stable to improving growth that we saw as 2012 wound down," said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey.
Investors are focused on Friday's non-farm payrolls report. Analysts surveyed by Reuters expect an increase of 150,000 jobs.
Treasurys had sold off earlier this week on news the government had reached a last-minute agreement to avert the "fiscal cliff" of tax hikes and spending cuts that threatened to plunge the economy back into recession.
President Barack Obama and congressional Republicans, however, face two more months of tough talks on spending cuts and an increase in the nation's debt limit as this week's hard-fought deal covered only taxes and delayed decisions on expenditures until March 1.
One big buyer offered a bit of support for Treasury debt prices. The Federal Reserve on Thursday bought about $5.1 billion of Treasurys maturing in 2017 in its first stimulus operation of the year.
The central bank's "Operation Twist" stimulus program, under which it sold shorter-dated Treasurys and bought longer-dated debt, expired at year-end.
The Fed is now buying about $40 billion per month of mortgage-backed securities and $45 billion per month of longer-dated Treasurys in an effort to prop up the economy. Some analysts have dubbed the Fed purchase programs "QE4."
Analysts also said investors may be looking to cheapen Treasurys heading into the sale of $66 billion of government debt next week.
The Treasury said on Thursday it will sell $32 billion of three-year notes, $21 billion of reopened 10-year notes and $13 billion of reopened 30-year bonds on Tuesday, Wednesday and Thursday, respectively.