A report from the Institute of Supply Management showed that US factory activity slowed more than expected in December. The ISM index fell to 54.1 in December versus 59.3 in November, the biggest drop since October 2008.

The benchmark 10-year US government note yield fell to a session low of 2.58 percent, a more than 50 percent retracement from its 2018 high. It is down 7.9 basis points, having fallen below 2.6 percent for the first time since January 2018.

The two-year Treasury yield fell to its lowest since June 7 and was last down 6.9 basis points at 2.44 percent. The two-year yield rises with investors' expectations of Federal Reserve interest rate hikes. Thursday's move indicates diminished expectations for further monetary tightening in 2019 after the central bank lifted rates four times in 2018.

Weakening iPhone sales in China prompted tech giant Apple Inc on Wednesday to cut its quarterly sales forecast. Investors pulled out of equity markets following the announcement, which suggested that the economic slowdown in China may be worse than expected, casting a shadow over the outlook for corporate profit growth this year.

China's economy was already a focus of concern after a measure of its manufacturing activity shrank for the first time in 19 months in December, hit by the Chinese-US trade war, with the weakness spilling over to other Asian economies.

US private payrolls increased by the most in nearly two years in December, suggesting sustained strength in the labor market and boosting yields slightly, though without redirecting the day's downward trend.

Labor market data is being closely watched for effects of tightening financial conditions on companies' hiring decisions. It is unclear whether signs of a slowdown in hiring will appear in Friday's government employment report.

A section of the yield curve remained in inversion, with the yield on 1-year bills now exceeding those on all securities through the 7-year maturity.