By Deborah Levine, MarketWatch NEW YORK (MarketWatch) — Treasury prices rose Thursday, pushing yields back down, after a pair of reports showed U.S. first-time claims for unemployment benefits increased more than expected while the nation’s trade deficit improved better than seen. The mixed bag of data leaves traders’ attention keenly on Federal Reserve Chairman Ben Bernanke, who is scheduled to speak later in the session on the economic outlook. Yields on 10-year notes 10_YEAR -1.66% , which move inversely to prices, fell 5 basis points to 2.01%. A basis point is 1/100th of a percentage point. Yields on 30-year bonds 30_YEAR -0.89% declined 5 basis points to 3.32%. Yields on 2-year notes 2_YEAR -3.83% , mostly pinned by interest-rate expectations, slipped 2 basis points to 0.19%. The Labor Department said 414,000 applicants filed for initial unemployment benefits in the latest week. Read more on jobless claims. “Overall, a soft report on labor market conditions,” said Ian Lyngen, bond strategist at CRT Capital Group. Separately, the Commerce Department said the U.S. trade deficit shrank in July by the most since February 2009. See story on trade gap. That bodes well for the economy and “is encouraging to know that the global economy was on much firmer footing in July than during the first half of the year,” said Millan Mulraine, economic strategist at TD Securities. Bond yields have plunged in recent weeks, taking 2-year and 10-year yields to record lows. Yields on benchmark 10-year notes retraced a bit of the move on Wednesday in what analysts called a very tepid consolidation. Read about bond market on Wednesday. Fed doing the Twist? As for the Fed, more investors expect the central bank to take further action to provide support to the economy, with the most likely strategy now being seen as shifting the composition of its bond portfolio toward longer-dated securities. Read more about Fed’s Bernanke. Instead of quantitative easing, the shorthand for a central bank buying more of its own country’s debt, this strategy is being compared to “Operation Twist” — something similar to what the Fed did decades ago. Still, many analysts question how effective it will be in stimulating growth. The idea would be to lower borrowing costs — benchmarked on long-term Treasury yields — to encourage taking out mortgages, or refinancing, or companies borrowing more to grow themselves. But rates are already near record lows, and that kind of activity is hindered by other factors beyond the central bank’s control. ”The whole twisted argument smacks of desperation and perhaps these are desperate times for a Fed near the end of the policy ropes and where fiscal austerity looms just over the horizon,” said Bill O’Donnell, head of Treasury strategy at RBS Securities. Analysts also expect few market-moving proposals from President Barack Obama when he speaks to Congress on Thursday evening. Read more on Obama’s jobs plan. The U.S. bond market also took little notice of comments from European Central Bank President Jean-Claude Trichet indicating officials there are done raising interest rates and may revert to cutting them later this year. See story on Trichet, ECB.

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