Treasury debt prices dipped Thursday, as reports of a stronger-than-expected U.S. service sector and job market reduced expectations for a deep cut in official interest rates.
Major U.S. retailers, led by discounters Wal-Mart Stores and Target, contributed to the evidence of a still-growing U.S. economy, reporting better-than-expected August sales as consumers shopped for back-to-school items despite higher gas prices and the U.S. housing meltdown.
Analysts said stock market gains put some pressure on bond prices, though persistent signs of trouble in the mortgage market and remaining concerns about the availability of credit kept a floor under U.S. government debt prices.
In afternoon trading, the benchmark 10-year note was down 8/32 in price for a yield of 4.49 percent, compared with 4.47 percent late Wednesday. Bond yields and prices move inversely.
"The economic data were a bit better, stocks are trying to gain some upside momentum and the Treasury market may be overbought," said William Sullivan, chief economist at JVB Financial Group.
"The feeling is that the Fed does not want to operate on an inter-meeting basis, so if you only get a 25-basis-point rate cut in September, you might have to wait until the end of October to get the next 25 basis points."
The Federal Reserve is expected to cut interest rates at its Sept. 18 meeting. After Thursday's jobless claims, rate futures indicated traders are less certain the Fed will cut by 50 basis points.
Still, Treasury market losses were limited, given higher levels of foreclosures and deliquencies in the U.S. mortgage market in the second quarter, developments that could weigh on future economic growth.