US Treasury debt prices eased on Thursday as the market's bearish momentum and anxiety over looming jobs data superseded a surprisingly large spike in weekly jobless claims.
The story has been the same all week - despite a two-day respite from more than a month of selling, the bond market's underlying tone remained negative as investors faced up to the reality that more interest rate hikes were in the cards.
Federal Reserve officials certainly hammered the point home, signalling in a barrage of speeches that inflation was becoming more of a concern and therefore implying that they were keen to tighten monetary policy further.
Sensing that likelihood, benchmark 10-year notes slipped 5/32 to yield 4.37 percent, up from 4.35 percent on Wednesday.
The next major event for bonds is Friday's employment report for September, although uncertainty surrounding the aftermath of Hurricane Katrina made financial markets' likely reaction even more difficult to predict than usual.
Wall Street was already bracing for a large hurricane-related decline in job creation, so Treasuries may not benefit as much as they ordinarily would from a downside surprise.
In any case, Treasuries have had a difficult time rallying on weak data these days amid the looming prospect of more official interest rate hikes.
The biggest risk to the market, strategists said, is a number that surpasses forecasts, which currently center around a drop of 143,000 jobs.
Five-year notes were off 2/32 and yielding 4.37 percent, while the 30-year bond was down 13/32, its yield rising to 4.59 percent from 4.57 percent. Two-year note yields were flat at 4.19 percent.
Another interesting aspect of the jobs report will be average hourly earnings, which analysts use as a way to gauge upward pressures on wages.
This will be particularly important to the market now giving the Fed's repeated warnings about price gains, especially since worker compensation represents one of the largest costs faced by businesses.
Wall Street estimates suggest hourly earnings rose 0.2 percent after a 0.1 percent gain in August.
Data released on Thursday showed the number of Americans filing new claims for jobless benefits rose by a higher-than-expected 21,000 last week as the scale of hurricane-related applications increased.
Initial claims for state unemployment aid rose to 390,000 from an upwardly revised 369,000 the previous week, well above predictions for a slight uptick to 370,000.