Yields on U.S. Treasurys continued to set fresh multiyear highs amid a strong batch of economic data, increasing expectations the Federal Reserve will raise interest rates at its October meeting.

The 10-year Treasury yield rose as high as 5.165%, the highest level since 2007, while the 30-year yield increased to 5.455%, the highest since 2004, according to Tradeweb data.

U.S. oil prices also continued to rise, with Brent crude prices climbing over 4%, to $107.87 a barrel, adding to inflation concerns. U.S. natural gas futures rose more than 6%.

Investors will focus on the Treasury's $44 billion auction of seven-year notes and its $6 billion buyback auction of 20- and 30-year bonds on Thursday.

Manufacturing activity in the central U.S. accelerated in September, coming close to its pace from June, a monthly survey said. U.S. jobless claims also continued to tick down lower, reinforcing the view the labor market has held steady.

Meanwhile, new U.S. home sales rose more than analysts expected, but was still lower than the pace of sales seen in August last year as elevated mortgage rates affect first-time home buyers.

Philadelphia Fed President Anna Paulson said Thursday more Fed tightening may be warranted if conditions evolve as she expects.

"By September, it was clear that the balance of risks had shifted," Paulson said. "Underlying inflation showed little to no progress," she added.

New York Fed President John Williams said it is reasonable to expect another rate increase by the end of the year when delivering remarks in London early Thursday.

The 10-year German Bund yield rose to 3.612%, its highest level since 2009, while the WSJ dollar index rose to 96.98, its highest since the end of July.

The 10-year U.K. gilt yield hovers around 5.385%.

Thursday's moves marked an extension of massive selloffs of Treasurys on Wednesday, when yields rose by 10 to 15 basis points.

Growing expectations that the Federal Reserve will raise interest rates again also underpin strength in the dollar, DHF Capital's Bas Kooijman said in a note.

"Rates are once again at the forefront of investor concerns, as long-term U.S. Treasury yields consolidate around or above the 5% threshold--a level that carries significant psychological weight for the markets," Raphael Thuin, head of capital markets strategies at Tikehau Capital, said in a note.

"The key question is whether this upward trend can continue and, even more importantly, whether financial markets and the economy as a whole can coexist with higher interest rates for the foreseeable future," he said.

Mohit Kumar, a global economist at Jefferies, said "stop outs and position unwinds" were also a major feature of Wednesday's selling.

"There appears to be a lot of pain on the street in fixed income," Kumar said in a note. "The breakdown in correlation between oil, rates and risky assets suggests that yesterday's move was a dominant position squaring move, rather than driven purely by fundamentals," he said.

The balance of probabilities suggests there is at least one more leg of weakness in long-dated bonds still to play out in the coming months, Padhraic Garvey, regional head of research for the Americas, and Michiel Tukker, senior U.K. and eurozone rates strategist, at ING said.