NEW YORK (CNNMoney.com) - Treasury bond prices trimmed gains after the November trade report showed a deficit that was narrower than investors on Wall Street had expected.

The dollar strengthened against the euro and edged higher against the yen.

The benchmark 10-year note rose 7/32 to 100-17/32, yielding 4.42 percent, down from 4.45 late Wednesday. The 30-year bond added 11/32 to 111-8/32 to yield 4.61 percent, down from 4.63 the previous session. Bond prices and yields move in opposite directions.

The two-year note gained one tick, yielding 4.40 percent, while the five-year note was flat, yielding 4.36 percent

The trade deficit narrowed more than expected in November to $64.2 billion. Economists were expecting a trade deficit of $66 billion, according to Briefing.com.

And the number of workers making new claims for unemployment benefits rose less-than-expected to 17,000 last week. Initial jobless claims were expected to tick up to 320,000 from 291,000.

A narrower trade deficit can be a negative for the bond market since it could point to more inflationary pressure at home and more rate hikes by the Federal Reserve. Imports usually help keep inflation at bay.

Inflation is a bond investor's worst enemy since it erodes the value of fixed income investments.

But a falling trade deficit typically boosts the dollar.

"The improvement in the trade gap is always welcome but the continued high level is always a concern. Strong exports (are) a confirming sign that growth is picking up in the rest of the world," Alan Gayle, a managing director at Trusco Capital Management in Atlanta, told Reuters.

"In general, the twin deficits (trade and federal) will be an ongoing source of volatility in the dollar and interest rates," Gayle said.

The biggest economic news of the week is due Friday, when December retail sales and producer prices are due.

That means investors will have to be patient in their search for more clues about whether the Fed's monetary tightening campaign is, in fact, winding down.

Right now, investors are betting the Federal Reserve will raise rates one or perhaps two more times this year, but views are split on whether the central bank will keep going beyond that.

In currency trading, the dollar gained against the euro and the yen.

The euro bought $1.2017, down from $1.2126 late Wednesday in New York. The dollar bought ¥114.30, up from ¥114.16 in the previous session.

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