Treasury yields fell across the board, reversing an earlier rise, as weaker prices on Wall Street stocks stoked some safe-haven demand for US government bonds.
Expectations that inflation would stay relatively tame, together with worries about the Trump administration's trade policy against China and other US trade partners, rekindled investors' favoring longer-dated government issues over short-dated ones, analysts and traders said.
Federal Reserve Chairman Jerome Powell's two-day testimony before Congress, which concluded on Wednesday, supported the curve flattening move.
"It's staying the course at this point from Powell," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York. "He's optimistic on the economy, and we can expect more rate hikes."
The futures market implied traders saw a 61 percent chance the Fed would increase its target range on key interest rates twice more this year, CME Group's FedWatch program showed.
That view was not altered even after President Donald Trump told CNBC television he was "not thrilled" about interest rate hikes.
The spread between 2-year and 10-year Treasury yields narrowed to 25.10 basis points. This was within striking distance of 23.40 basis points, which was the flattest level since July 2007, Reuters data showed.
The rest of the curve was mostly flatter with the exception of the five-year to 30-year part which steepened to 22.50 basis points.
"The path of least resistance is still more flattening but at a slower pace," said George Goncalves, head of US rates strategy at Nomura Securities International in New York.
The benchmark 10-year note yield reached a three-week peak at 2.897 percent before retreating to 2.845 percent, down 3 basis points from Wednesday.
Two-year yield touched 2.632 percent earlier on Thursday, which was the highest since August 2008. It was last at 2.595 percent, down 1.6 basis points on the day.
Against the mild inflation backdrop, the Treasury Department sold $13 billion worth of 10-year Treasury Inflation Protected Securities.
The ratio of bids to the amount of 10-year TIPS offered was 2.22, the lowest reading since July 2017, Treasury data showed.
Thursday's readings on unemployment and regional business conditions strengthened the case for Fed policymakers to continue their rate-hike campaign.
US workers filed the fewest first-time claims for jobless benefits in more than 48-1/2 years last week, the Labor Department said.
Meanwhile, the Philadelphia Fed's barometer on business activity in the US Mid-Atlantic region increased more than expected in July.
Still, trade tension remains a top worry among investors.
The European Union's trade commissioner, Cecilia Malmstrom, said on Thursday she hopes an EU mission to Washington will ease a trans-Atlantic trade dispute but said the bloc is preparing a list of US imports to hit if the United States imposes tariffs on EU-built cars.