A selling spree in Treasurys pushed rates higher, taking the yield curve to its steepest on record as spreads between the 2-year and 10-year widened by over a dozen basis points on Wednesday alone.

The 10-year saw its yield move above 3.70 percent, after trading at 3.55 percent the previous day. The selling wave hit bonds shortly after 1 p.m., even after the auction of $35 billion in 5-year notes was well received.

"It was a great auction. It was just the follow through that was a problem," said Brian Edmonds, head of interest rate trading at Cantor Fitzgerald.

Traders are bracing for more of the same Thursday. The Treasury is auctioning another $26 billion in notes, this time 7-years.

The heavy issuance - more than $100 billion this week alone - has been pressuring the market.

Some key data will also get the market's attention Thursday, including weekly jobless claims, durable goods and new home sales.

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"Now we're going to be glued to Treasury auction results," said Art Hogan of Jefferies.

Hogan said the lull in the earnings period has left the stock market "catalyst light," making the Treasury action even more important for stocks.

He said rising yields hurt stocks both because they create an attractive alternative investment and because they could potentially hurt the outlook for an economic recovery, which stocks have been trading on.

The Dow Wednesday fell 173 or 2 percent to 8300, while the S&P 500 was off 17, or 1.9 percent at 893.

Traders said selling in Treasurys this week was exaggerated by "convexity" selling, or mortgage related hedging, which causes traders to sell Treasurys as a hedge as mortgage prices move lower and rates go higher.

The Fed, meanwhile, has been an active buyer of mortgages in an effort to keep rates lower, and until the last couple of days, selling in Treasurys did not ripple into the mortgage market.