Treasury prices fell on Wednesday after a new government report showed better than expected productivity from the U.S. workforce.

The Labor Department said worker productivity rose 1.8 percent during the fourth quarter, down from 6 percent in the third quarter. A poll of analysts from Thomson Financial had expected productivity to drop to 0.5 percent.

The labor report may reduce inflation expectations at the Federal Reserve, which has cut interest rates aggressively to spur the economy.

Ten-year notes fell 15/32 as yields rose to 3.622 in late morning trading from 3.57 late Tuesday. Two-year notes dropped 3/32 to yield 1.975 from 1.92 percent.

Inflation