Treasurys held onto gains Thursday, pushing yields lower, as investors focused on a report showing continuing claims for unemployment benefits rose to the highest since November 1982 in the latest week.
The data come a day before a report expected to show that unemployment jumped to the highest since 1993 last month.
Gains may be limited ahead of the Treasury Department's auction of $16 billion in 10-year notes.
Ten-year note yields ) fell 2 basis points, or 0.02%, to 2.48%.
Two-year note yields fell 2 basis points to 0.80%.
The Labor Department said jobless claims declined 24,000 to 467,000 in the week ended Jan. 3. Some analysts noted the numbers around this time of year tend to be volatile because claims slow during the holidays. See jobless claims story.
"We assume that the drop reflected year-end volatility rather than a sudden sharp improvement in fundamental labor market conditions, and we look for first-time filings to rebound over the next couple of weeks," said economists at Wrightson ICAP.
Continuing jobless claims, an indication of the longer-term trend and difficulty in finding a new job, rose to 4.61 million in the week ended Dec. 27.
On Friday, the Labor Department may say unemployment rose to 7.1% from 6.7% in November, according to the median forecast of economists surveyed by MarketWatch.
Also supporting the bid in government debt, U.S. stocks headed lower after Wal-Mart Stores announced disappointing December sales and lowered its forecast. See Wal-Mart story.
Data-storage firm EMC Corp. said it would cut 2,400 jobs as part of a plan to reduce costs this year.
Ten-year auction
The Treasury Department will accept bids for 10-year notes until 1 p.m. Eastern.
The sale will be a second reopening of the quarterly issue, meaning the security will carry the same yield and maturity as the notes issued in November.
The government usually reopens the 10-year note sale a month after the original offering. But this is the first time in some years that it's having a second reopening, and for an amount that is more than analysts anticipated.
The Treasury already sold three-year notes and 10-year inflation-protected securities this week.
Increasing debt issuance has been in focus lately, with analysts bracing for more than $1 trillion this fiscal year as the government finances several programs designed to revive financial markets and spark economic growth. Some also note that a deteriorating jobs picture on Friday may have the opposite effect on bonds as would traditionally be expected.
"The worse the number, the bigger the stimulus and the worse the bond market does," said Andrew Brenner, co-head of structured products and emerging markets at MF Global.
President-elect Barack Obama made a fresh push for an economic stimulus plan on Thursday, saying a big package of spending and tax cuts will be costly but without it, "a bad situation could become dramatically worse."
