NEW YORK (Marketwatch) -- Treasury prices headed lower Thursday, with 10-year note yields rising to the highest since November, after the Federal Reserve bought a lower portion of U.S. debt offered to it in its latest buyback.

Treasurys had been higher earlier in the session. With data and other news mostly done for a holiday-shortened week, traders' attention turned to preparing for the $101 billion in auctions the government has slated for next week.

Ten-year-note yields TMUBMUSD10Y, 0.696% rose 15 basis points, the most since May 7, to 3.34%. A basis point is 0.01%. Yields move inversely to prices.

Two-year-note yields TMUBMUSD02Y, 0.109% increased 1 basis point to 0.85%.

The Fed bought $7.398 billion in Treasurys on Thursday in its third such operation of the week.

Dealers submitted $45.694 billion in debt maturing from 2013 to 2016 to be bought, by far the most ever tendered for operations of any maturity range. See results on Fed's website.

The last time the Fed bought from this segment, on April 27, it purchased $7.025 billion, of about $23.4 billion offered.

Late Wednesday, the Fed lowered its forecasts for U.S. employment and said the economy will shrink more than previously predicted. Policy makers also said, in minutes of the April 28-29 Open Market Committee meeting, more purchases of long-term debt from the market "might well be warranted at some point to spur a more rapid pace of recovery."

The central bank has bought more than $100 billion in Treasurys so far, well on its way to the $300 billion they plan to buy before autumn.

The Fed "may have wanted to push back the dealer community after many concluded yesterday from the FOMC minutes that the Fed might either increase its Treasury purchases or be more aggressive with its purchases," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.

Also weighing on the market, the Treasury Department will sell $40 billion in 2-year notes on Tuesday, the same amount as last month and matching the amount expected by Wrightson ICAP, a research firm specializing in government debt.

The government will also offer $35 billion in 5-year notes TMUBMUSD05Y, 0.268% the following day, and $26 billion in 7-year notes on Thursday.

The 5- and 7-year note amounts both match what was sold last month, though Wrightson had expected the government to increase sizes.

The 7-year security was reintroduced in March to help the government spread out its increasing debt issuance needed to fund all of lawmakers' stimulus plans and the Fed's programs to stabilize financial markets.

"Given the extent of the supply that Treasury will be issuing, that will probably limit the ability to see a longer-term downturn in yields," said John Canavan, a fixed-income analyst at Stone & McCarthy Research Associates.

Thursday is the last full trading day before that 2-year auction, as the Securities Industry and Financial Markets Association recommend bond trading end early on Friday and remain shuttered Monday in observance of Memorial Day.

Mixed data

Bond prices were higher in earlier trading as economic data in the U.S. and equity markets' reaction to the Federal Reserve's dour outlook on the economy doused investors' hopes for a quick recovery from recession.

The Labor Department said initial claims for unemployment benefits fell to a seasonally adjusted 631,000 in the week ending May 16.

Continuing claims rose to a new record high, indicating continued problems in the employment sector. See more on jobless claims.

The Dow Jones Industrial Average DJIA, +1.66% was recently down more than 2%.

"Asset markets have pulled back a bit from recent recovery enthusiasm," said T.J. Marta, strategist and founder of research firm Marta on the Markets.

The main exception was British gilts, after Standard & Poor's lowered its outlook on the country's AAA rating to negative. See more on U.K. outlook cut.

The yield on 10-year gilts rose to as high as 3.72%, the highest in almost three weeks.

Treasurys pared gains after the Philadelphia Fed said manufacturing in that region improved to -22.6 in May, from -24.4 last month. Readings below zero indicate contraction in the industry.

Also, the national index of leading indicators rose to 0.1% in April, the first increase in seven months, from -0.3% in the prior month. The move to a positive number indicates the recession will be less intense in the near term, according to the Conference Board. See more on leading indicators.