A knee-jerk response to sell bonds was tempered by the components of the Philadelphia index, especially a decline in the employment index to 12.3, its lowest since November 2003.
"The breakdown was a lot friendlier to bonds. A large drop in prices paid and a large drop in the employment index was helpful, so people who started to sell on the 'print' stopped when they saw the breakdown," said Rick Klingman, head of Treasury trading at ABN Amro.
The benchmark 10-year Treasury note lost 4/32 for a yield of 4.17 percent, up from 4.16 percent on Wednesday. Resistance is seen to a move above 4.20 percent or below 4.15 percent.
Thirty-year bond prices fell 13/32 in price to yield 4.54 percent, up from 4.52 percent. Two-year notes were up 2/32 at a yield of 3.38 percent and five-year notes were steady, yielding 3.78 percent.
Federal Reserve Chairman Alan Greenspan ended his testimony on the US economy to the House Financial Services Committee after being quizzed mostly about Social Security reform. His testimony had little new impact on Treasuries.
Greenspan repeated Wednesday's written testimony, which gave an upbeat reading on the economy and raised expectations the Fed's policy of small rate increases will persist through at least mid-year.
Quizzed by lawmakers, Greenspan said he does not see a bubble in national housing prices, repeated support for a higher national savings rate and said US economic growth would eventually slow as large numbers of Baby Boomers retire.
Earlier, Treasuries fell after weekly jobless claims dipped unexpectedly to the lowest since late 2000 and January import prices rose by a higher-than-forecast 0.9 percent.
"Although ex-petroleum prices appear restrained, imported consumer goods prices seem to be accelerating. This will draw notice at the Fed," said Drew Matus, senior financial economist at Lehman Bros.
The hints of inflation triggered more profit-taking on curve flattening trades. The spread between two- and 10-year yields widened by five basis points to 79 bps, its highest since early February.
Tempering the stronger data was a dip in the Conference Board's January leading economic indicators, ending a two-month streak of gains.