U.S. Treasury debt prices tumbled on Thursday as stocks rose on optimism surrounding a mortgage rescue plan and investors worried jobs data might deter more aggressive interest rate-cutting by the Federal Reserve.
Wall Street was still looking for another quarter point rate cut next Tuesday, but a robust reading on U.S. nonfarm payrolls in a government report due on Friday would dampen the outlook for a more aggressive half-point move.
A drop in jobless benefit claims, which came a day after a surprisingly rosy reading of private-sector employment, highlighted that prospect.
"The bond market is prepared for a stronger payroll figure than was expected," said Tony Crescenzi, chief bond market strategist at Miller, Tabak.
A firmer stock market, in which financial shares benefited from the prospect of a White House plan to aid mortgage borrowers, also lured traders out of their Treasurys safe haven.
"We're seeing pressure in bonds from the changing attitudes in financial stocks," said Andrew Brenner, a market analyst at MF Global.
Benchmark 10-year notes dropped 15/32 and offered a yield of 4.01 percent, up 5 basis points.
Two-year note yields jumped a full 10 basis points to 2.93 percent.
Data showing U.S home foreclosures rising to record highs in the third quarter were largely dismissed as old news.
Jobless claims retreated but remained at the higher end of the recent range, painting a mixed picture of the labor market.
All the attention will now turn to Friday's jobs report.
Economists are looking for a gain of around 90,000 for November, following October's 166,000 rise, according to a Reuters poll.
Complicating the bond market's likely course of action following the figures is its almost symbiotic inverse link to equities in the current risk-averse environment. If the Fed sends enough signals about its willingness to continue easing policy and stocks rally, the bond market might just extend this week's selloff.