Long-dated U.S. Treasurys prices slipped slightly on Thursday after improved labor market data and stock market gains undermined the appeal of lower-risk government debt.
After strong demand emerged for a 10-year Treasury note auction on Wednesday, the reception for the 30-year bonds the Treasury sold on Thursday was lackluster.
"The 30-year refunding auction didn't go well," said John Canavan, market analyst at Stone & McCarthy Research Associates in Princeton, New Jersey. "The indirect bid was unusually strong, but the direct bid fell off a cliff."
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Direct bidders accounted for only 4.87 percent of the purchases, the smallest share since September 2009.
The drop in direct participation was mitigated by a rise in central banks and other indirect bidders which bought 41.97 percent of the offering, the biggest share in four months.
The $13 billion in an older 30-year bond issue was sold at a yield of 3.248 percent, the highest level in a year.
Bonds briefly widened losses after Treasury released the auction results.
Treasury debt yields began the session trading higher in tandem with Spanish bond yields after an auction of longer-term Spanish debt met healthy demand.
Price declines were extended after data showing the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, marking the third straight week of declines.
Benchmark 10-year notes were down 2/32, their yields rising to 2.03 percent from 2.02 percent late on Wednesday. Thirty-year bond yields were down 3/32, their yields rising to 3.23 percent from 3.22 percent.
Even with stocks headed higher once again and upbeat news on the labor market, losses in the safe-haven U.S. Treasury market were minimal at the long end and absent in shorter maturities.
Analysts said this is partly because many investors find a 10-year note with a yield above 2 percent somewhat attractive.
In addition, the Federal Reserve is expected to keep buying U.S. Treasurys, a big support for the market.
"Monetary policy will almost certainly remain extremely expansionary through 2013 and the Fed will keep buying," said David Berson, senior vice president and chief economist at Columbus, Ohio-based Nationwide Mutual Insurance Company. "The Fed won't tighten for years."
When it comes to the economy, "everything is just less bad," said Ellis Phifer, senior market analyst at Raymond James in Memphis, Tennessee. He expects the 10-year note yield to touch 2.15 percent if the stock market continues its winning streak.
The Treasurys market on Thursday largely shrugged off data showing U.S. producer prices in February rose by the most in five months as gasoline prices spiked. Overall, the report showed little sign of a broader increase in inflation pressures.
The Labor Department said its seasonally adjusted producer price index increased 0.7 percent last month after advancing 0.2 percent in January.