The yield curve steepened from its flattest level in a decade as Senate Republicans' bill to rewrite the tax code differed from their House counterpart. This complicated investors' outlook on whether future government borrowing might spike higher to finance proposed steep tax cuts.
The Senate plan, like the House version, would cut the corporate tax rate to 20 percent from 35 percent, but would delay this by one year until 2019.
Another key difference was that the Senate proposal did not include a repeal of a critical component of the Affordable Care Act, or Obamacare, which the House bill contains.
"It looks like the passage of a tax bill would be lengthy and may end up being a disappointment," said Bruno Braizinha, interest rate strategist at Societe Generale in New York.
Growing concerns about tax cuts and other changes, which investors have been counting on to boost company profits and economic growth, have spurred selling in stocks, junk bonds and other risky assets, while kindling some safe-haven demand for Treasuries.
The 10-year Treasury yield traded at 2.333 percent, up over 1 basis point from Wednesday when it hit a near three-week trough of 2.304 percent, while the two-year yield dipped 1 basis point to 1.633 percent.
The yield spread between two-year and 10-year Treasuries hit a fresh decade-tight level of 65.9 basis points earlier on Thursday, before steepening to 69.8 basis points, Reuters data showed.
Traders have favored longer-dated Treasuries over shorter-dated issues over the past couple of weeks, on the uncertainty about a tax overhaul and a diminished likelihood of an introduction of a Treasury bond that matures beyond 30 years.
Expectations of further rate increases from the Federal Reserve and domestic inflation remaining below the Fed's 2 percent goal have made "curve-flattener" trades more appealing, analysts said.
The curve-flattening move made longer-dated Treasuries expensive, reducing their appeal at this week's government bond auctions, which were part of the November refunding.
Thursday's $15 billion 30-year Treasury bond sale fetched average demand, similar to the results at a $23 billion 10-year note auction the day before.
Companies issued $34 billion in investment-grade debt from Monday through Wednesday with another 13 deals set for sale on Thursday, according to IFR, a Thomson Reuters unit.