Treasury debt prices traded steady at lower levels following relatively decent demand in an auction of $18 billion of 5-year notes.
Indirect bidders, including foreign central banks, took about 33.5 percent of the notes, above the average indirect bidder interest of 26.3 percent in the monthly 5-year note auctions of 2007.
"Fair auction ... solid indirects," said Andrew Brenner, senior vice president at MF Global in New York.
The benchmark 10-year Treasury note was trading 17/32 lower in price for a yield of 3.53 percent from 3.46 percent late Wednesday.
The 5-year note was trading 9/32 lower in price for a yield of 2.56 percent from 2.50 percent late Wednesday and a high yield of 2.595 percent in Thursday's auction.
Treasury debt prices fell earlier as stock gains, supply and the perception that credit markets strains might lessen dulled the lure of safe-haven US government debt.
Bonds were lower early in the session and pushed to fresh lows on news that new claims for jobless benefitsfell in the week ended Saturday. A higher opening in stocks also weighed on bond prices until stocks turned lower, allowing bonds to do better, but not to push all the way into positive territory.
But a better performance by the stock market at midday sent bond prices deeper into the minus column.
"Stocks have been slowly making their way up from mid-morning lows," said John Canavan, analyst at Stone and McCarthy Research Associates. "Also, there's some positioning ahead of the Treasury's five-year note auction."
The Treasury will sell five-year notes in its monthly auction at 1 p.m.
In addition, awareness of today's first Term Securities Lending Facility (TSLF) auction when the Federal Reserve will extend $75 billion of Treasuries to dealers for 28 days in exchange for riskier mortgage assets has eased some concerns about the lending crisis, said John Spinello, Treasury bond strategist at Jefferies & Co in New York.
"Speculation that the TSLF auction could potentially ease some of the pressures in the credit market reversed some of the safe-haven bid for Treasurys," Canavan said.
Analysts said that even a stock market retreat is not always providing sufficient nervous buying to send bond prices all the way into the plus column, rather than merely bouncing from lower prices.
"The market has a negative bias right now and has had a negative bias for a while," Spinello said.
Another sign that the bond market is more apt to sell off than to rally is that a higher stock market hurts bonds more than a lower stock market helps, Spinello said.
Yields on long-dated Treasurys were approaching recent highs, Spinello noted.
"For foreign investors, there's underlying concern about the lower dollar and there's also worry about inflation down the road so the back end is under pressure," he said.
Thirty-year bonds traded 1-10/32 lower in price, their yields rising to 4.39 percent from 4.34 percent Wednesday. Inflation erodes the value of a bond over time.
Two-year notes were down 1/32, their yields rising to 1.70 percent from 1.68 percent Wednesday.
Investors are also favoring fixed-income instruments offering higher returns than Treasurys, analysts said.
"Sister product is really the product of choice right now," Spinello said, referring to fixed-income investments that offer higher yields than Treasurys.
Early in the session, a drop in new jobless claims and a solid start in the stock market diminished the safe-haven attraction of Treasury bonds.
Government data showed the number of workers filing new claims for jobless benefits fell by 9,000 last week, though a more reliable gauge of layoff trends rose to its highest in more than two years.
Also, economic growth for the fourth quarter of last year slowed to 0.6 percent, the government said. While the growth was slight, it was in line with the consensus forecast in a market where some had expected an even weaker number.