Treasury debt prices eased on Wednesday as investors cashed in on a string of gains while stocks tried to find a footing after posting severe losses earlier in the week.
Bond yields have fallen near their lowest in over four years as investors have fled equities on fears the economy might be sliding into recession. Some giveback seemed inevitable.
"We do not see the economic landscape so dire that you can justify this," said Bob Millikan, director of fixed-income at BB&T Asset Management.
As both the Dow and the S&P squeaked into positive territory, 10-year notes lost 8/32 for a yield of 3.71 percent, up three basis points on the day. Earlier, benchmark yields fell as low as 3.62 percent, the lowest since July 2003 and barely 50 basis points above a four-decade low.
The session's economic data was not particularly friendly to bonds, with inflation posting its biggest yearly gain in 17 years and industrial production ducking expectations for a December contraction.
The Fed's Beige Book was neutral, chronicling a still-growing but softening economy.
But the real impetus for Treasuries was the stock market, which has been falling rapidly enough of late to spark speculation about a possible emergency interest rate cut from the Federal Reserve.
With things apparently stabilizing, however, the most likely scenario was another half percentage point interest rate cut at the end of January, which would bring the target fed funds rate to 3.75 percent.
Traders were not yet willing to call that elusive bottom in bond yields, since many such predictions have proven premature as credit-related losses mount and the chances of a more pronounced economic downturn rise.
Two-year note yields were steady at 2.50 percent, near four-year lows.