US Treasury debt prices slipped on Wednesday as investors ignored a decent auction of two-year notes and came to grips with the likelihood of further interest rate hikes from the Federal Reserve.
Traders were also taken aback by a surprisingly strong rebound in consumer confidence for November, which analysts said could portend a recovery in consumer spending just in time for the holidays.
Bonds had jumped higher on Tuesday following minutes from the Fed's last meeting that showed signs the central bank was starting to think about an end to its rate-hiking campaign.
But some argued the market was already expecting the process to draw to a close sometime early next year, and that the minutes did not justify benchmark yields at their lowest level in a month.
"To a certain extent the market is correcting the bullishness that came from the Fed minutes because the text was a lot less dovish than the headlines," said David Ging, fixed-income strategist at Credit Suisse First Boston.
Ging added that some of the selling was technical in nature as well, with the market's inability to pierce 4.42 percent generating flows in the opposite direction.
Benchmark 10-year notes were off 11/32 for a yield of 4.47 percent, up from 4.43 percent at Tuesday's close. The price move was somewhat exaggerated by thin volume, dealers said, with the market closed on Thursday for the Thanksgiving holiday and opened for only a shortened period on Friday.
Two-year notes eased 2/32 for a yield of 4.35 percent, up from 4.32 percent, while five-year notes eased 5/32 to yield 4.37 percent. The 30-year bond lost 25/32 to yield 4.71 percent.
The Treasury borrowed $20 billion in two-year notes, which were auctioned at a high yield of 4.349 percent and drew bids 2.16 times per dollar of debt on offer, just below an average of 2.18 times in the year's 10 previous two-year note auctions.
Indirect bidders, which include customers of primary dealers and foreign central banks, took home $7.95 billion, or 39.8 percent of the deal, above the 34.3 percent average of the year's other two-year note auctions.
Treasuries first started to ease after the University of Michigan reported a jump in its measure of consumer sentiment to 81.6 in November from 74.2 in October, above forecasts for a rise to 80.5.
Wednesday's other data were on the soft side. Mortgage applications fell last week, led by a decline in refinancing as mortgage loan rates rose to a 16-month high.
The number of US workers filing new claims for jobless benefits grew to a seasonally adjusted 335,000 from a revised 305,000 the previous week, the Labour Department said. Wall Street had forecast 315,000 new claims.