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Treasury prices fell Thursday as the market absorbed a strong auction of inflation-protected securities and a round of mixed economic data, reversing some of the gains seen in the market in recent weeks. The benchmark 10-year note (10_YEAR) yield, which rises as prices fall, was up 1.5 basis points at 2.550%, hitting its highest level in over a week, according to Tradeweb.

The rise in yields begins to reverse a drop during much of the year, and particularly in recent weeks, which defied consensus expectations of rising rates going into 2014. The rally has been pinned on a number of factors, including technical positioning, buying by big institutional investors, and expectations of accommodative central bank policies.

“I think it’s just that we ran too far and this is a correction of a slightly overbought market,” said Thomas Roth, director of government trading at Mitsubishi UFJ Securities U.S.A. Inc.

The 30-year bond (30_YEAR) yield rose half a basis point to 3.423% and the 5-year note (5_YEAR) yield rose 2.5 basis points to 1.544%.

Strong TIPS sale

The market held its trading levels after a strong auction of $13 billion in 10-year TIPS, which are sold to investors by the Treasury Department to protect against inflation. The notes sold at a yield of 0.339%. the lowest since May of last year.

Demand from indirect bidders, which often include foreign central banks, was at a record high, with that group of investors taking down 66.3% of the sale, compared with an average of 52.2%. Direct bidders, which often include domestic money managers, bought 6.3% of the sale, compared with 9.8% in recent auctions.

Bidders offered to buy 2.91 times the amount of debt for sale, compared with 2.45 times in recent auctions.

Data surge

Earlier in the day, Treasury prices began falling after a spurt of economic data, the first major indicators of the week. Existing-home sales rose 1.3% in April to a seasonally adjusted annual rate of 4.65 million. Economists polled by MarketWatch expected April sales to rise to a rate of 4.66 million.

The Markit final May U.S. manufacturing PMI hit a three-month high of 56.2, compared with 55.4 in April, suggesting that manufacturing will help propel a rebound in economic growth in the second quarter.

The Conference Board’s U.S. leading economic index was up 0.4% in April to 101.4.

Treasurys cut losses on data showing the number of people applying for unemployment benefits rose more than expected. Jobless claims jumped by 26,000 last week to 326,000. Economists polled by MarketWatch had forecast a reading of 315,000.

Chicago Fed national activity index swung to negative to 0.32 in April from positive 0.34 in March, indicating that economic growth moderated last month. However, the three-month average rose to positive 0.19 in April, the highest reading since November.

The data come as investors look to take the pulse of the economy amid concerns over the pace of U.S. growth after a particularly cold winter in much of the U.S. and around the world.

Andrew Kenningham of Capital Economics wrote in a note: “Preliminary business surveys published today confirm that economic activity is expanding rapidly in the US and that China’s manufacturing sector has stabilized. However, the industrial recovery in the euro-zone has faltered and output in Japan is likely to contract, at least temporarily, in Q2.”

Treasury prices began falling overnight after a strong reading of the HSBC China Manufacturing Purchasing Managers Index overnight.

By Ben Eisen, MarketWatch