(Bloomberg) -- Treasury yields climbed Thursday as a selloff in European government bonds overshadowed weakening US labor market data.

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The price action highlighted the monetary-policy divergence between the regions. Euro-zone yields rose after the European Central Bank, which cut interest rates as expected, indicated it may not do so again, prompting traders to reposition.

US yields rebounded from session lows reached after an unexpected increase in new jobless claims caused traders to briefly price in an earlier start to Federal Reserve interest-rate cuts — in September versus October.

With more comprehensive May employment data to be released Friday, the claims figures highlighted the prospect that the Fed will act to prevent further labor-market erosion, even as short-term inflation expectations have picked up based on the Trump administration’s tariff’s agenda.

“Market pricing now shows a big gap between ECB and Fed rate-cut expectations for 2025,” said Hussain Mehdi, director of investment strategy at HSBC Asset Management. “The Fed remains hamstrung by inflation amid the supply shock that is higher tariffs,” which likely “keeps US yields sticky.”

Related story: Bond Forwards Signal Tariff-Driven Inflation May Be Short-Lived

Treasury yields were mostly higher at midday in New York, after erasing declines. The two-year note’s yield, more sensitive than longer-dated yields to shifting expectations for Fed policy, was higher by about four basis points after erasing a similar-magnitude decline. Swap contracts ceased to fully price in a September rate cut, while continuing to price in at least two quarter-point cuts by year-end.

Most euro-zone two-year yields ended higher by at least five basis points, after ECB President Christine Lagarde said the central bank was approaching the end of its monetary policy cycle and may revise its growth forecast higher in the future.

Bond-market momentum also was sapped after reports US President Donald Trump and Chinese President Xi Jinping held their first official phone call since Trump took office in January. Trade tensions between the world’s two largest economies have caused bouts of risk aversion and capital flows from stocks into bonds.

The Treasury market rally sparked by the jobless claims data followed its biggest daily advance in two months on Wednesday, also in response to a weak job-market indicator.