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Treasuries Move Notably Lower Amid Rate Hike Worries

After ending the previous session roughly flat, treasuries moved notably lower over the course of the trading session on Thursday.

Bond prices initially showed a lack of direction but slid firmly into negative territory as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, advanced by 5.3 basis points to 2.773 percent.

With the significant increase on the day, the ten-year yield ended the session at its highest closing level in well over three years.

The weakness among treasuries may have been partly in reaction to a report from the Labor Department showing a sharp jump in labor costs in the fourth quarter.

The Labor Department said unit labor costs spiked by 2.0 percent in the fourth quarter after slipping by a revised 0.1 percent in the third quarter. Economists had expected costs to climb by 0.8 percent.

The data may have raised concerns about the outlook for interest rates after the Federal Reserve predicted inflation would move up this year and stabilize around its 2 percent objective over the medium term.

The Fed left interest rates unchanged on Wednesday, but slightly more hawkish comments reinforced expectations the central bank will raise rates at its next meeting in March.

The Labor Department report also said labor productivity edged down by 0.1 percent in the fourth quarter after surging up by a revised 2.7 percent in the third quarter. Economists had expected productivity to climb by 1.0 percent.

A separate report from the Institute for Supply Management showed a slight slowdown in the pace of growth in manufacturing activity in the month of January.

The ISM said its purchasing managers index edged down to 59.1 in January from 59.3 in December, although a reading above 50 still indicates growth in the manufacturing sector. Economists had expected the index to dip to 58.8.

James Knightley, Chief International Economist at ING, said the data suggests activity hasn't been unduly impacted by the bad weather at the start of the year, which he said would intensify expectations for interest rate hikes.

Looking ahead, the Labor Department's closely watched monthly jobs report is likely to be in focus during trading on Friday.

Employment is expected to increase by 180,000 jobs in January after climbing by 148,000 jobs in December. The unemployment rate is expected to hold at 4.1 percent.

The jobs report is likely to overshadow separate reports on consumer sentiment in January and factory orders in December.

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