The selling took on a momentum of its own after rapidly rising yields breached 4.53 percent, a key chart level that forced dumping of Treasuries by investors worried about slower prepayment speeds of mortgage loans.
Benchmark 10-year notes slumped 11/32 for a yield of 4.59 percent, up from 4.54 percent on Tuesday but below the 4.61 percent touched at the height of selling. Yields have already spiked a hefty 20 basis points so far this week.
"It is looking increasingly likely that the 10-year's trading range is resetting from the placid 4.00-4.50 percent range that has prevailed for 2-1/2 years to something higher," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co.
Bonds got little help from an auction of $20 billion in two-year notes that dealers described as average. The sale garnered a high yield of 4.365 percent and 2.21 times the number of bids per dollar of debt on offer.
That was just above the 2.17 average of the nine previous two-year auctions in 2005.
Indirect bidders, which include customers of primary dealers and foreign central banks, took home $6.93 billion, or 34.7 percent of the deal, also just above the 34.1 percent average at the nine previous two-year auctions.
The current two-year note was off 2/32 and yielding 4.38 percent, up from 4.34 percent.
Treasuries resumed a two-month selling trend this week as investors realised that not only is the Federal Reserve likely to raise interest rates when it meets next week, it is also likely to keep doing so in subsequent meetings.
The nomination of Ben Bernanke to succeed Alan Greenspan next month removed some uncertainty from the market, but traders were starting to question his inflation-fighting credentials before he was even confirmed for the job.
"Some of this selling is related to uncertainty over the inflation view of the proposed new Fed chairman," said Andrew Brenner, head of fixed-income at Investec US
Traders reported heavy trading volume, a good deal related to a mortgage market looking to hedge against slower prepayments that would prevent brokers from reinvesting at higher yields - a phenomenon known as extension risk.