US Treasury debt prices fell sharply on Thursday after data showing a drop in jobless claims and stronger regional manufacturing suggested the Federal Reserve can leave interest rates alone.
The latest evidence of economic resilience came from the Philadelphia Fed, whose index of Mid-Atlantic factories surpassed Wall Street forecasts and helped push benchmark bond yields to a one-month high.
Treasuries had already been trading lower after a decline in the number of Americans filing for unemployment benefits pointed to some amelioration in the labour market.
"It's an improvement that's obviously going to weigh on bond prices," said Beth Malloy, a market analyst at Briefing.com. The market felt heavy indeed, with benchmark 10-year notes down 10/32 and yielding 4.76 percent, up four basis points and its highest since mid-April.
Traders were also unnerved by another pick up in the prices-paid component of the Philadelphia Fed's factory activity survey, the fifth straight rise. "It supports other data in suggesting the recent declines in core consumer prices, even if they continue, will not take inflation within the Fed's comfort level for very long," said T.J. Marta, fixed-income strategist at RBC Capital Markets.
Dealers continued to keep an eye on the stock market, where higher oil prices had discouraged investors from testing record highs. But the inverse correlation between the two markets appeared to have broken down for the moment, with two-year notes off 3/32 and offering a yield of 4.79 percent, up five basis points.