Treasury prices lower

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NEW YORK (CNNMoney.com) -- Treasury prices fell Thursday as investors responded to improved economic data and awaited results from the stress tests of U.S. banks.

Separately, a key borrowing rate hit a record low for a third straight day.

"More encouraging data and indications the stress tests won't be too detrimental to the economic outlook have taken some of the anxiety out of the market," said Kim Rupert, a fixed-income analyst at Action Economics.

Government figures showed the number of people filing initial claims for unemployment benefits fell to the lowest level in three months.

Another government report showed worker productivity rose 0.8% in the first quarter versus a forecasted 0.6% increase.

The market was also focused on the stress tests the government conducted on 19 of the nation's biggest banks. The results were due to be officially released later Thursday, but early reports suggest many of the banks in question are healthier than expected.

"We're seeing signs the economy might be turning a corner and that's removed some of the safe-haven demand for Treasurys," Rupert said.

Meanwhile, bondholders remained concerned about the record amounts of debt the government has issued to fund, among other things, its various economic stimulus and financial rescue plans.

The Treasury Department will offer $14 billion worth of 30-year bonds Thursday in the last of three auctions this week totaling $71 billion. That's on top of the $101 billion worth of Treasurys sold last week.

While demand for U.S. debt remains strong, many analysts say the growing supply of Treasurys will weigh down prices as the economy recovers and investors seek higher returns in more risky markets.

Bond prices: The newly auctioned 10-year note was down 31/32 to 98-15/32 and its yield rose to 3.3% from its median auction yield of 3.14%. Bond prices and yields move in opposite directions.

The 30-year bond slid 2-16/32 to 87-10/32, and its yield rose to 4.26% from 4.09%.

The 2-year note was down 2/32 to 99-25/32, and its yield increased to 1% from 0.97%.

The yield on the 3-month eased to 0.18% from 0.19%.

Lending rates: In a continuing sign that banks are becoming more willing to lend, 3-month Libor fell to its third straight all-time low at 0.96%, down from 0.97% Wednesday, according to Bloomberg.com. The overnight Libor rate was unchanged at 0.24%.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London. It is a closely watched benchmark and is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.

On Tuesday, the 3-month rate dropped below 1% for the first time since 1986, when the British Bankers Association started keeping records.

While bank-to-bank lending conditions are improving, credit remains tight for small businesses and consumers, according to a report from the Congressional Oversight Panel.

"A snapshot of small business credit at the beginning of 2009 shows credit terms tightening and loan volume dropping," the panel reported Wednesday. "Families are facing an even more difficult situation."