Government debt prices rose on Thursday with benchmark yields hovering at two-week lows, after data on jobless claims undercut optimism that the U.S. jobs market is gaining traction.
Nagging jitters about the euro zone's fiscal woes and the perception the Federal Reserve might consider more stimulus to help the U.S. economy also revived bids ahead of a $29 billion auction of seven-year notes.
The U.S. Labor Department said new jobless claims fell to a fresh four-year low last week. But the report also contained revisions for claims data from 2007 based on updated seasonal adjustment calculations, including a significant upward revision for the previous week's number. This resulted in speculation that recent improvements in jobless claims may not have been as rosy as first thought.
"So you haven't seen as much improvement on the firing side as you had previously thought," Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York, said of the jobless claims revisions.
Earlier this week Fed Chairman Ben Bernanke made comments, including in a television interview, that the U.S. economy remains vulnerable despite recent encouraging data on job growth. However, he stopped short of signaling that the U.S. central bank might soon embark on a third round of large-scale bond purchasing, known as QE3, to boost sluggish economic growth.
Bernanke noted that the unemployment rate, currently at 8.3 percent, is worrisome given the outlook for tepid growth.
The latest jobless claims data, together with this week's weaker-than-expected data on regional manufacturing and durable goods orders, compounded concerns about the strength of the U.S. economic recovery, analysts said.
"The data in the U.S. have started to disappoint in the past two weeks," said Anthony Valeri, fixed income strategist at LPL Financial in San Diego, which has about $330 billion of advisory and brokerage assets.
The benchmark 10-year Treasury note was 11/32 higher in price with its yield at 2.16 percent, down 4 basis points late on Wednesday.
The 30-year bond last traded up 22/32, yielding 3.27 percent, down about 4 basis points from Wednesday.
Longer-dated yields have stayed below their 200-day moving averages, signaling the bond market has stabilized after a steep sell-off two weeks ago.
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Meanwhile, Bernanke will give his fourth and final lecture about the Fed at George Washington University at 12:45 p.m. EDT (1645 GMT).
Three other top U.S. central bank officials have scheduled public appearances on Thursday, including Atlanta Fed president Dennis Lockhart and Richmond Fed chief Jeffrey Lacker who are voting members of the Federal Open Market Committee this year.
Prior to these Fed officials' engagements, the Fed sold $8.62 billion in Treasuries due in two to three years, which was a part of its $400 billion "Operation Twist" to help hold down long-term interest rates.
Limiting the gains in the bond market was uncertainty over the demand on the seven-year auction, the last part of this week's $99 billion coupon-bearing debt, after unimpressive bidding from domestic money managers and foreign buyers at the $35 billion five-year note auction on Wednesday.
In early "when-issued" trading, the new seven-year note is expected to sell at a yield of 1.578 percent, which would be the highest yield since October.
"We had a bit of a disappointing five-year. This (the seven-year auction) could be a bit of a hurdle for the market," LPL's Valeri said.
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