Separately, U.S. consumer prices rose for a fifth straight month in June as the cost of gasoline and a range of other goods increased, further signs of firming inflation that strengthen the case for an interest rate hike this year.
"The housing sector this year has been one of the only sectors that has shown consistent strength, so that continuing I think bodes well for the overall economy," said Thomas Simons, a money market economist at Jefferies in New York. "CPI came in pretty close to expectations."
The yield curve between five-year notes and 30-year bonds flattened to 139 basis points, the flattest since June 17. Benchmark 10-year notes were little changed to yield 2.34 percent.
Federal Reserve Chair Janet Yellen in a testimony to Congress this week said that U.S. interest rates are likely to rise this year depending on economic conditions.
Some traders have viewed those comments as hawkish, putting the possibility of a September rate hike back on the table and pushing the dollar to six-week highs against other major currencies on Thursday.
Read MoreTraders watch for whiff of inflation
"If a very benign profile to CPI had previously been a major roadblock to a rate move, along with extensive slack in the labour market, it appears to be something that the FOMC (Federal Open Market Committee) majority now appears to be willing to 'look through,'" Marc Ostwald, a strategist at ADM Investor Service, said in a note ahead of the data release.
Safe-haven bonds in Germany and the U.S., meanwhile, drew some support from caution ahead of a parliamentary vote in Germany on a new three-year bailout program for debt-stricken Greece.
Germany is one of several countries in the euro area that must vote for the rescue deal for it to go ahead.
—Reuters contributed to this report.