Long bonds tumbled more than three full points on Thursday as selling accelerated following a poorly received auction of 30-year U.S. Treasurys.
Demand at the $9 billion auction of 30-year debt was low by most measures.
Losses in the wake of the sale pushed up the yield on the existing 30-year bond to 4.54 percent from 4.36 percent late on Wednesday.
Bonds are seen as expensive after an almost nonstop seven-month rally and long maturities are especially vulnerable given concerns about inflation pressures. The 30-year bond was on track for its worst daily performance since the Treasury started reissuing that maturity two years ago.
"I had been expecting a downtrade following the recent rally and thought that downtrade would begin with supply, because I don't think the levels here are safe enough relative to where inflation is," said Josh Stiles bond strategist and managing director with IDEAglobal in New York.
The $9 billion of 30-year bonds were sold at a bid-to-cover ratio, an indication of demand, of 1.82, below average.
Indirect bidders, who include foreign central banks, took around 11 percent of the sale, well below average.
"It wasn't a very good auction and I think it surprised the participants," said Lou Brien, a strategist with DRW Trading Group in Chicago. With low foreign interest and a lighter-than-average bid-to-cover ratio, "this one can be characterized as poor," Brien said.
The bond market also struggled as stocks shrugged off earlier data releases that would normally be supportive of safe-haven fixed income prices.
Pending sales of previously owned U.S. homesfell more than expected in December, pointing to more dreary conditions for the beleaguered U.S. housing market.
In the labor market, new applications for U.S. unemployment benefitsfell by 22,000 last week, but the number of workers remaining on jobless aid rose to its highest in more than two years, government data showed.
The benchmark 10-year Treasury note fell 1-2/32 in price for a yield of 3.74 percent, versus 3.60 percent late Wednesday.