The yield on 10-year notes stood at 1.625 percent, near Wednesday's low of 1.610 percent, its lowest since Sept 7, having fallen almost 30 basis points from a four-month peak hit earlier this month.

The rally was driven in part by strength in mortgage bonds following the Fed's decision earlier this month to buy $40 billion of them a month.

Optimism that Spain may manage to put its finances under control with support from the European Central bank is also starting to fade as the country faces street protests and a secession movement in wealthy Catalonia.

"Market players had been thinking that things would get better once Spain asks for financial aid. But now we are dealing with whole new elements," said Arihiro Nagata, head of foreign bonds at Sumitomo Mitsui Banking Corp.

The euro zone's triple-A rated countries said earlier this week, in an apparent backtracking from an agreement in European summit in June that the currency bloc's permanent bailout fund should not take care of "legacy assets", suggesting individual countries such as Spain be responsible for the current woes.

This appeared to many market players all-too-familiar a pattern that has plagued the euro zone, where policymakers clinch an agreement to deal with an imminent crisis but fight over details later as soon as market tensions ease.

Spain is due to announce a series of economic reforms and a tight 2013 budget later in the day, aiming to avoid the political humiliation of having Brussels impose conditions on a request for an international bailout.