NEW YORK: Benchmark US Treasury yields hovered at two-month highs on Thursday as the market braced for the sale of 30-year paper after a 10-year auction the previous day drew only tepid demand, weighing on the market.
Price losses were extended after data showed the number of Americans filing new claims for jobless benefits unexpectedly fell last week.
Treasuries also were undermined by data showing the US trade deficit in June was the smallest in 1-1/2 years as lower oil prices curbed imports.
"The jobless claims report looks pretty decent this week after the seasonal adjustment difficulties in July," said Thomas Simons, vice president and money market economist at Jefferies & Co in New York, adding "the US trade gap narrowed, fueled by an increase in exports -- that should be positive for GDP."
The data gave some solace to investors worried about a sluggish US economic recovery and eroded the safe-haven appetite for US government debt.
"The fear trade seems like it is unwinding a little bit," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.
Benchmark 10-year Treasury notes were trading with a yield of 1.72 percent, up from a high yield of 1.68 percent in an auction of $24 billion of the notes on Wednesday. Yields are trading at the highest since mid-June.
Thirty-year bonds were 20/32 lower in price to yield 2.78 percent, up from 2.75 percent late on Wednesday.
The Treasury department will sell $16 billion of 30-year bonds on Thursday afternoon to meet its quarterly refunding needs. Demand at Wednesday's sale of 10-year notes, based on the bid to cover ratio, was the lowest since August 2009 .
"Yesterday's 10-year auction was not well received despite the backup in yields, and this may prompt increased volatility around today's long bond auction," said Michael Cloherty, head of US rates strategy at RBC Capital Markets in New York.
In the "when-issued" market, considered a proxy for where Treasuries will be auctioned, the 30-year bond was trading with a yield near 2.80 percent.
The Treasury sold $32 billion of three-year notes on Tuesday as part of the quarterly refunding.
The rise in yields on Thursday was limited by uncertainty over when the European Central Bank might resume bond purchases to help Spain and Italy, traders said.
The ECB said it would only take such a step after a country requested assistance, something that can't happen until at least September when the German constitutional court decides whether to give the go-ahead to a permanent euro zone rescue fund.
A drop in Chinese consumer inflation, which left room for further policy easing, also diminished demand for safe-haven US debt. Annual consumer inflation fell to a 30-month low of 1.8 percent in July from June's 2.2 percent, while the producer price index dropped 2.9 percent in July compared with a year earlier.
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