Uncertainties over negotiations for Britain to exit the European Union and worries over escalating trade tensions between China and United States following the arrest of a top executive of Chinese technology giant Huawei Technologies Co. also stoked safe-haven demand for US government debt, analysts and traders said.
The shift in the rate-hike outlook kindled appetite for short-dated Treasuries, tilting the yield curve slightly away from its flattest levels in over a decade.
Earlier this week, shorter-dated yields rose above medium yields for the first time since early 2008, stoking speculation about a US recession in the coming months.
"The outperformance of the short-end of the yield curve is driven by a repricing of rate-hike expectations," said Jonathan Cohn, interest rate strategist at Credit Suisse in New York.
Interest rate futures implied traders now see no more than one rate increase from the Fed in 2019, compared with expectations for possibly two rate hikes a month earlier, according to CME Group's FedWatch program.
Fed policymakers are still expected to increase key short-term lending rates by a quarter point to a target range of 2.25-2.50 percent at their Dec. 18-19 meeting.
At 10:18 a.m. (1518 GMT), the yield on two-year Treasury notes fell 10 basis points to 2.711 percent after touching its lowest level since Sept. 10.
The benchmark 10-year yield hit a three-month trough of 2.845 percent. It was last down 7 basis points at 2.851 percent.
The spread between two-year and 10-year yields widened 2 basis points to 13.60 basis points after it narrowed to 9 basis points on Tuesday, its tightest level in over a decade.
US financial markets were closed on Wednesday for a national day of mourning for former US President George H.W. Bush who died last Friday.
Thursday's domestic economic data did not bolster traders' confidence about the economy.
The US trade deficit surged to a 10-year high in October as soybean exports fell further and imports of consumer goods rose to a record high, suggesting the Trump administration's tariff-related measures to shrink the trade gap likely have been ineffective.
Payroll processor ADP said domestic private payrolls grew by 179,000 last month, fewer than the 195,000 forecast of analysts polled by Reuters.