Investors eyeing Fed as buyer in the wings Treasury prices turned higher Thursday, reversing earlier weakness, as investors bought short-term debt ahead of the Federal Reserve's purchases scheduled for Friday. Longer-dated securities lagged in the gains, as investors prepared to bid on a record amount of 7-year notes, the last of three government auctions this week. Two-year note yields slid 4 basis points lower, or 0.04%, to stand at 0.92%. Yields move in the opposite direction of prices. Ten-year note yields slid 1 basis point to 2.78%, after being higher in earlier trading. The central bank said it intends to buy notes maturing in two to three years. "That's putting a strong bid in the front end of the market," said Andrew Brenner, co-head of structured products and emerging markets at MF Global. The Fed bought $7.5 billion in 7 to 10-year debt on Wednesday, much more than analysts expected. U.S. debt was also supported by signs of continuing weakness in the job market and slower overall economic growth in the fourth quarter. Initial claims for unemployment benefits rose to 652,000 in the latest week, the Labor Department said. Continuing claims rose to a new record high, indicating finding a new job is increasingly difficult. See more on jobless claims. "There is still no evidence of a slowing in the pace of deterioration in the labor market in these claims data," said RDQ Economics. A separate report showed the U.S. economy shrank at 6.3% annualized pace in the fourth quarter, better than economists forecast. It was the government's final update on gross domestic product for the period. See more on GDP. Money flowed into U.S. equities Wednesday, though gains were limited. The Treasury Department will sell $24 billion in seven-year notes, with bids due at 1 p.m. Eastern time. The yield on the current 7-year note was little changed at 2.35%. Traders frequently sell existing holdings in order to bid on debt about to be put up for bid. It's only the second auction of the maturity in more than a decade, part of the government's plan to spread out its increasing debt issuance needed to finance the various economic-stimulus spending and tax cuts as well as Federal Reserve programs to grease the wheels of credit markets. Analysts will be closely watching for the results of the auction, to gauge demand for both the new security as well as U.S. debt in general. On Tuesday, the government received strong interest for $40 billion in 2-year notes, though Wednesday's $34 billion in 5-year notes garnered a lackluster reception.

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