NEW YORK (MarketWatch) -- Treasurys continued to rally on Thursday, sending yields to record lows, with economic reports painting a bleak picture of the economy and with fixed-income assets benefiting from the Federal Reserve cutting interest rates to historic lows.
"Treasury yields continued to hit fresh record lows overnight as market participants front-run the Fed's quantitative easing strategy and the potential for outright purchases of Treasuries," analysts at Action Economics said.
Yields on the benchmark 10-year Treasury notes ) fell 12 basis points to 2.072%, the lowest since active trading began in the early 1960s. Yields on the 30-year bond were down 12 basis points at 2.535%.
Yields on two-year notes lost 7 basis points to 0.680%.
First-time claims for state unemployment benefits dropped 21,000 to 554,000 in the week ended Dec. 13, easing back part of a surge in the prior week, the Labor Department reported Thursday.
Still, the four-week average of those claims rose 2,750 to 543,750 -- the highest level since December 1982, and initial claims are not expected to drop again until mid-January, according to the Labor Department. See full story on jobless claims.
Separately, manufacturing in the Philadelphia region bounced off lows in December, the Federal Reserve Bank of Philadelphia reported Thursday.
The Philly Fed diffusion index rose to negative 32.9 in December from negative 39.3 in November. The reading in November was the worst since October 1990. Readings below zero indicate contraction. The report was not as weak as expected. Economists were expecting the index to slip to negative 42.0.
"The data was still pathetic despite the rebound on Philly," Action Economics said.
On Wednesday, 10-year Treasurys had rallied as much as 1.1%, sending yields to as low as 2.08%, as U.S. government debt continued to benefit from the Federal Reserve's moves to lower interest rates to a range of zero to 0.25% and to purchase debt.
Also on Thursday, the European Central Bank reduced its rate on its deposit facility by 50 basis points to boost money markets. The announcement helped lift the dollar against the euro.
