U.S. Treasuries slid Thursday as investors scaled back expectations of an imminent Federal Reserve interest rate cut amid lingering uncertainty over inflation and stark divisions among central bank policymakers on the outlook for the economy and monetary policy.

The U.S. government reopened after a record 43-day shutdown, easing some of the uncertainty that had weighed on market sentiment.

The bill agreed to in Congress and signed by President Donald Trump removes a key source of disruption, though the bond market remained focused on broader fiscal and monetary challenges ahead.

A soft U.S. 30-year bond auction also added to the overall market selloff, although it was not a surprise for some investors because previous sales of the debt have been underwhelming for most of this year.

In afternoon trading, the benchmark 10-year Treasury yield was up 3.6 basis points at 4.115%, while U.S. 30-year bond yields rose 4.4 bps to 4.706%.

On the shorter end of the curve, the two-year yield, which reflects interest rate expectations, advanced 2.7 bps to 3.593%.

Bond prices move inversely to yields. U.S. rate futures priced in on Thursday just a 50% chance of another Fed rate cut next month, from about 62% late on Wednesday, according to LSEG calculations, with about 80 bps of cuts expected by the end of 2026.

"The Fed is clearly divided ... and the speakers made it clear that there isn't a lot of data that you can latch on to. "It's obviously right to be concerned about inflation because it's sticky at 3%," said Bob Savage, head of markets macro strategy at BNY in New York.

"We won't get a CPI (Consumer Price Index) report for October, but we will get it for November. If you discount food inflation, which is clearly there, or energy deflation, what you really want to focus on is our services (inflation), which is sticky, and how much have all the headlines about job losses really translated into wages going up or down."

In the absence of data, bond investors have focused on comments from Fed officials.

A growing number of Fed policymakers in recent days have signaled hesitation on further easing, helping push financial market-based odds of a reduction in borrowing costs in December to near even. Fed officials who spoke recently cited worries about inflation and signs of relative stability in the labor market after two U.S. rate cuts this year.

'PERSISTENT INFLATION'

"Inflation has been persistent and we had some interesting comments from (Treasury Secretary Scott) Bessent backing off on some food tariffs," said George Cipolloni, portfolio manager at Penn Mutual Asset Management in Philadelphia.

"I think that's, quite frankly, an acknowledgement that they have been wrong on tariffs," Cipolloni added.

Bessent on Wednesday said Americans would see "substantial announcements" in the coming days aimed at lowering the prices of products such as coffee, bananas and other items not grown in the U.S.

"We are definitely seeing weakness in the labor market: that's clear, but we're just not getting enough relief on the inflation side. So the Fed is kind of stuck. I would be surprised if they didn't cut at least one more time by 25 basis points," Cipolloni added.

The U.S. Treasury on Thursday sold $25 billion in 30-year bonds in an auction that drew weak demand. The bonds priced at 4.694%, above market expectations at the bid deadline, indicating investors demanded a premium to take them down.

The bid-to-cover ratio, another gauge of demand, was 2.29, less than the 2.38 for the $22 billion reopened bonds last month but higher than the 2.27% for the new issue in August.

Data also showed that primary dealers absorbed 14.5% of the auction supply — almost double the previous 8.7% and slightly above the 13.1% average — suggesting they had to step in to support demand.

Dealers generally avoid holding large volumes of Treasuries because doing so inflates their balance sheets, increases leverage requirements, and forces them to allocate more capital.

In other parts of the bond market, the yield curve steepened, as the spread between U.S. two-year and 10-year yields rose to 52 bps, from 49.7 bps late Wednesday.

The curve was in a bear-steepening mode, with long-term yields rising faster than short-term rates. It reflected investor views that inflation has picked up, at which point the market is pricing in that the Fed could pause its easing cycle.