Dated Treasurys fall on better-than-expected jobless claims

Bond prices were mixed on Thursday with dated Treasurys edging lower after the government reported that the number of Americans who filed for unemployment benefits slipped last week.

The Labor Department said initial jobless claims fell more-than-expected to 512,000, which triggered a rally on Wall Street. Still, investors are anxiously awaiting the October employment report due Friday.

"Investors look at earnings and employment as key drivers as to when the economic recovery is going to occur, and the consensus is the first half of 2010," said Bill Larkin, portfolio manager at Cabot Money Management. "A disappointing unemployment number will hinder economic recovery, which would be favorable for the Treasurys but negative for the stock market."

Economists are expecting the economy to have lost another 175,000 jobs last month, which could push the nation's unemployment rate closer to 10%, according to a consensus of economists surveyed by Briefing.com.

Larkin also said the new supply of bonds entering the market next week is also making investors nervous.

The Treasury announced a record refund on Wednesday, saying it plans to auction a total of $81 billion in debt next week, with $40 billion of 3-year notes, $25 billion of 10-year notes, and $16 billion of 30-year long bonds. An announcement about more supply typically reduces debt prices.

"We're seeing redistribution to longer-term securities," Larkin said. "The debt the government has been financing has been skewed to the short end, so they're equalizing that and putting more capital needs into longer dated bonds, resulting in steeper yields."

Bond prices. The 30-year bond lost 1/32 to 101-19/32. Its yield rose to 4.41% from 4.40% late Wednesday. Bond prices and yields move in opposite directions.

The benchmark 10-year note was down 1/32 to 100-25/32 and its yield was 3.53%.

The 2-year note edged up 2/32 to 100-8/32, with a yield of 0.89%.

The yield on the 3-month bill was 0.05%