Bond prices have been falling as major central banks have adopted more hawkish rhetoric, especially from the European Central Bank. Last week, ECB President Mario Draghi said the European economy was "strengthening and broadening," adding "the threat of deflation is gone and reflationary forces are at play."
"If Draghi hadn't spoken, yields globally would probably be unchanged," said Eric Souza, senior portfolio manager at Silicon Valley Bank. "The market is basically looking down the road and realizing that this low-rate environment we're used to may not be ending, but [central banks] are definitely taking their foot off the pedal."
Minutes from the ECB's June meeting released Thursday also showed officials discussed shifting their bias from easing to neutral, helping yields in the region rise and drag their U.S. counterparts higher.
"There's a good analogy between what's happening right now in the German bond market and what happened in the U.S. bond market back in 2013," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, referring to the so-called Taper Tantrum.
Investors in the U.S. also focused on a series of economic data releases. First, a report from ADP and Moody's Analytics showed the U.S. economy added 158,000 jobs last month, less than the expected 185,000. The report usually serves as a warm-up act for the Bureau of Labor Statistics' monthly employment report, which is set for release Friday.
"When we get to the level of employment that we have, ... you'd expect the pace of jobs creation to slow down," said Bill Northey, chief investment officer at the Private Client Group at U.S. Bank. "What we're looking for is how does that relate to inflation."
Weekly jobless claims, meanwhile, came in at 248,000, slightly higher than the expected 243,000. Other data released included the IHS Markit services PMI for June, which showed the strongest expansion in business activity since January, and the ISM nonmanufacturing index, which rose to 57.4 in June from 56.9 in May.
Gold futures for August delivery rose $1.60 to $1,223.30 an ounce.
The U.S. dollar index traded about half a percent lower, with the euro near $1.14 and the yen around 113.33 against the dollar.
The CBOE Volatility Index (VIX), considered the best gauge of fear in the market, traded near 12.60, near its highest since June 29.
About five stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 877.77 million and a composite volume of 3.353 billion at the close.
— CNBC's Tae Kim and Evelyn Cheng contributed to this report.