Treasury debt prices fell Thursday for a third straight session as worries over inflation and a spate of new debt supply continued to weigh on bonds.
Investors largely shrugged off data showing jobless claims were slightly higher than expected in the latest week, along with an upwardly revised estimate for first quarter economic growth that was in line with economists' expectations.
Overall, concern that high food and energy prices will boost inflation pressures dragged down the bond market.
"It is inflation fears and inflation expectations," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Mass. "We also have heavy new issuance in the Treasury market, so we have a supply situation.
Benchmark 10-year Treasury notes were trading 28/32 lower in price for a yield of 4.11 percent from 3.99 percent late Wednesday. The yield on the 10-year note traded as high as 4.12 percent Thursday morning, marking the loftiest since December.
The 2-year Treasury note was trading 6/32 lower in price for a yield of 2.76 percent, compared with a high yield of 2.64 percent in a 2-year note auction Wednesday.
The Treasury later Thursday will auction $19 billion of 5-year Treasury notes, and analysts said the new supply was a factor in recent debt price weakness. Traders often try to cheapen debt prices going into an auction, and the addition of supply can be bearish.
Wednesday's auction of $30 billion of 2-year notes was met with relatively lackluster demand.
Bond selling was exacerbated as yields broke through some key technical levels, with 10-year Treasury note futures breaking though their 200-day moving average.
"The Treasury market itself is under a reassessment, whether it's new money flows going into riskier assets, the lack of flight-to-quality type of trades and weighing the amount of supply we are dealing with. We have broken through some key support levels," said Kevin Flanagan, fixed income strategist for global wealth management with Morgan Stanley in Purchase, N.Y.
Data Thursday morning showed initial claims for state unemployment benefits climbed to 372,000 in the week ended May 24 from an upwardly revised 368,000 for the prior week.
Economists had been forecasting jobless claims of 370,000.
Also, the government upwardly revised its estimate of first-quarter growth in gross domestic product to 0.9 percent, which was slightly better than an initial estimate and on target with analysts' forecasts.
Five-year Treasury notes were trading 19/32 lower in price for a yield of 3.47 percent from 3.34 percent late Wednesday, while the 30-year bond was 1-12/32 lower for a yield of 4.78 percent from 4.69 percent.