U.S. Treasury yields fell on Thursday as demand for the bonds was boosted by quarter-end rebalancing and and a day ahead of highly anticipated jobs data for March. The Japanese fiscal year ending on Thursday also added demand for Treasuries.

Benchmark 10-year yields fell to 2.33% and are down from 2.56% on Monday, which was the highest since May 2019. “Right now, I think it’s just year-end for the Japanese and quarter-end for most institutions. ... The market’s had a fairly decent run,” said Tom di Galoma, managing director at Seaport Global Holdings in New York.

The closely watched yield curve between two-year and 10-year notes was around 4 basis points, after briefly inverting on Tuesday. An inversion in this part of the curve is viewed as a reliable signal that a recession may follow in one to two years. Some analysts say, however, that the signal has been distorted by the Federal Reserve's massive bond purchases.

"Heavy bond buying by central banks has caused long-term yields to diverge from economic fundamentals,” macro strategists at Wells Fargo led by Mike Schumacher said in a report. "The link between curve shape and growth has been weak at best since 2009."

The curve has been flattening as growth concerns and demand for duration holds down longer-dated yields relative to shorter-dated ones, which have been surging on expectations that the Fed will need to aggressively hike interest rates to stem the fastest inflation in 40 years.

March jobs data due on Friday will be closely evaluated for wage inflation, in addition to the headline jobs figure. Employers are expected to have added 490,000 jobs last month, according to the median estimate of economists polled by Reuters.

Average hourly earnings are expected to have risen by 0.4% on the month, and 5.5% on the year. Rising price pressures are being made worse by supply disruptions after Western nations imposed sanctions on Russia due to its invasion of Ukraine.

“As the war drags on, inflation will probably get quite out of hand and central banks will have to respond and will have to respond with big rate increases to stop it from getting out of control,” di Galoma said.

Fed funds futures traders are pricing in a 73% chance that the Fed will hike rates by 50 basis points at its May meeting, and expects the Fed’s benchmark rate to rise to 1.17% in June, from 0.33% now.

President Joe Biden on Thursday launched the largest release ever from the U.S. emergency oil reserve and challenged oil companies to drill more in an attempt to bring down gasoline prices that have soared during Russia's war with Ukraine.

Bonds had a muted reaction to data on Thursday showing that U.S. consumer spending slowed significantly in February, while price pressures continued to mount, with inflation posting its largest annual gain since the early 1980s.