NEW YORK: US Treasury debt prices rose on Thursday after higher-than-expected new claims for jobless benefits in the latest week suggested the labor market continues to struggle to recover.
The Federal Reserve is likely to stay highly accommodative in its monetary policy as long as unemployment remains at current lofty levels above 8 percent, and the latest jobless claims data fueled the appetite for lower-risk assets such as US government debt.
"Unexpectedly high claims, along with an upward revision for the second week in a row, are especially noteworthy after (Fed Chairman Ben) Bernanke's final statement in yesterday's press conference, when he said the employment data will be the most important determinant of Fed policy," said Christopher Low, chief economist at FTN Financial in New York.
Treasuries began the day with support from safety bidding related to ongoing worries about contagion from the debt crisis in Europe. Yield on Spanish 10-year debt rose to 5.85 percent, just under the 6 percent level that is seen as unsustainable.
Price gains in US debt were extended after the release of the jobless claims data, with benchmark 10-year notes trading 6/32 higher in price to yield 1.96 percent, down from 1.98 percent late Wednesday.
"Higher-than-expected initial jobless claims in the week ended April 21 and an upward revision to the prior week put into question the improving trend on the layoff front. It adds to concern about backsliding in job creation after faster employment gains earlier in the year," said Jonathan Basile, director of economics at Credit Suisse in New York.
The Fed held policy steady on Wednesday and reiterated its expectation that interest rates would not rise until late 2014. Chairman Ben Bernanke said at his post-meeting news conference that he was comfortable with the central bank's policy stance, although he said it was prepared to do more to aid the US economy if needed.
The Treasury will sell $29 billion of new seven-year debt later in the day. A sale of $35 billion of five-year notes on Wednesday met robust demand, with strong interest from foreign central banks and other indirect bidders reflecting the ongoing appeal of safe-haven assets.
Tuesday's sale of $35 billion of two-year notes was also met with solid demand.
Meanwhile, the Fed bought $1.833 billion of longer-dated Treasuries on Thursday as part of its latest stimulus program, which has been nicknamed "Operation Twist."
The Labor Department said initial claims for state unemployment benefits dropped by 1,000 in the latest week to a seasonally adjusted 388,000. The prior week's figure was revised up to 389,000 from the previously reported 386,000. Economists polled by Reuters had forecast new claims falling to 375,000 last week.
Thirty-year bonds were trading 12/32 higher in price to yield 3.13 percent, down from 3.15 percent late Wednesday.
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