NEW YORK (Reuters) - U.S. Treasury prices rallied Thursday, erasing narrow losses earlier in the day, driven by technical buying and the outlook for low interest rates, analysts said.
Around 3:30 p.m. ET, the benchmark 10-year note gained 13/32 of a point in price to 102-7/32, yielding 3.97 percent, down from 4.02 percent late Wednesday. The 30-year bond bounced 24/32 of a point to 107-24/32 to yield 4.85 percent, down from 4.91 percent late yesterday.
The two-year note edged up 1/16 of a point in price to 100-1/2, yielding 1.6 percent, and the five-year note added 1/4 of a point to 101-11/32 with a 2.95 percent yield.
"The selling abated, prices stabilized and people decided the path of least resistance is up," said Chris Rupkey, vice president and financial economist at Bank of Tokyo/Mitsubishi.
The tone in the Treasury market also improved when the stock market came off its highs, Rupkey said. In afternoon trade, blue chip stocks remained narrowly higher, but the Nasdaq composite index and the broad Standard & Poor's 500 stock index posted losses.
The fundamentally bullish backdrop for Treasurys also fostered buying, analysts said.
"The Fed's keeping rates on hold is a continual plus for the front end and the lack of inflation is what's keeping long rates low," said John Canavan, market analyst at Stone & McCarthy Research Associates.
HSBC fixed-income strategist Ralph Axel said he expected interest rates to trend lower, based on declining inflation.
Some investors are also putting cash into Treasurys because they have tempered expectations for future stock growth and because corporate yields have come down a lot, Axel said.
The market did not react to the latest U.S. jobs data, which were in line with expectations.
Jobless claims edged down to 341,000 last week from a revised 342,000 the week before, the government reported. Analysts had looked for a slight rise to 347,000.
"It's a very small decline," noted Elisabeth Denison, an economist at Dresdner Kleinwort Wasserstein. "It's definitely settling in a downtrend and all the information from the surveys and from that kind of data point to the labor market stabilizing and improving and we should see that in the payroll numbers."
December's weak payrolls figure sparked the latest surge in bond prices by convincing the market the Federal Reserve would be even tardier in raising interest rates than first thought.
The next payrolls report is not due until Feb. 6, giving bond investors a couple of weeks before they have to worry about it.
In the meantime, the Fed holds a policy meeting next week at which many assume it will reiterate its commitment to keeping policy accommodative for a considerable period.
Traders said Treasurys got some support from hopes for intervention-related demand as a renewed slide in the dollar stoked speculation that Asian central banks could add to their already large reserves of U.S. debt.
The dollar fell again against the euro, with the European currency buying $1.2711, up from $1.2631 Wednesday. The dollar bought ¥106.04, down from ¥106.96 late Wednesday, and falling to a one-week low versus the Japanese currency.
The Bank of Japan, in particular, has been a major buyer of dollars this month and much of that is expected to be funneled into Treasurys.
-- Reuters contributed to this story.
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