US Treasury debt prices slipped on Thursday, sending benchmark yields to fresh six-month highs as fears of higher interest rates superseded a well-received auction of inflation-protected securities.
But by the session's close, bonds had come off their lows as investors worried about making any bold bets before Friday's key report on consumer prices for September.
Treasury yields have been rising since early September as a steady chorus of Federal Reserve officials made clear they do not intend to stop raising interest rates soon.
This has made it difficult for the market to make any sort of convincing comeback, even when faced with negative economic data or positive debt auction results.
That was certainly the case on Wednesday. Investors glossed over a widening of the US trade deficit and solid demand for an auction of $8 billion in reopened Treasury Inflation Protected Securities, known as TIPS.
Dealers were also spooked by data on Thursday showing import prices had posted their largest jump in 15 years.
"The Fed is pretty much focused on inflation," said Kurt Karl, head of economic research at Swiss Re. "We are still importing inflation (so) the Fed is going to keep raising rates certainly in November and I think further after that."
Benchmark 10-year notes were down 6/32 for a yield of 4.47 percent, just below a six-month high of 4.509 hit earlier in the session but up from 4.45 percent on Wednesday.
The reopened TIPS were sold at a high yield of 1.979 percent, and garnered 2.11 times the number of bids per dollar of debt on offer, above an average 2.06 seen in the prior three re-openings of such a maturity.
Indirect bidders, which include customers of primary dealers and foreign central banks, gobbled up $3.97 billion or 49.6 percent of the sale - an unusually large amount that might signal inflation worries are stirring demand for TIPS.
Indirect bids had averaged only 40.1 percent in the last three 10-year TIPS sales, and 47.7 percent in the prior three reopenings.
Primary dealers were left with a manageable $3.94 billion or 49.2 percent of the deal.
But that was little comfort to the overall market, with the 30-year bond sliding 18/32 to yield 4.71 percent.
Two-year notes were flat and yielding 4.24 percent from 4.24 percent. Five-year debt dipped 1/32 to yield 4.33 percent, up from 4.32 percent.
Nor did the market draw any relief from a batch of economic data that might ordinarily been a boon to government debt.
The US trade deficit increased in August to its third-highest level on record, pointing to slower economic growth in the third quarter.
The Commerce Department said the August trade gap grew 1.8 percent to $59.0 billion, just below economists' forecasts of $59.5 billion.
Yet traders were more concerned about surging energy prices, which stoked the biggest rise in import prices in nearly 15 years, an increase of 2.3 percent.
All eyes were now turned to Friday's consumer prices report.
Forecasters were predicting a 0.9 percent jump in the overall consumer price index for September, almost double August's gain. Even more troubling for bonds, core inflation was expected to rise 0.2 percent after a 0.1 percent increase in August.
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