Treasury yields jump on 'glimmer of good news'

NEW YORK (CNNMoney.com) -- Treasury yields charged higher Thursday as better-than-expected news on the economic front eased fears about a stalling recovery or double-dip recession -- for now.

"Apparently, investor sentiment became so poor in recent weeks that any glimmer of good news -- no matter how small -- has led investors to shed their 'disaster protection' positions," said Kevin Giddis, president of fixed income markets at Morgan Keegan.

Yields jumped across the board, with the yield on the benchmark 10-year note rising to 2.71%, from 2.65% late Wednesday. Prices and yields move in opposite directions so rising yields suggest investors are shifting away from 'safety' and into riskier assets, like equities.

The yield on the 30-year bond climbed to 3.79%, marking the highest level since Aug. 13, and up from 3.73% Wednesday. Traders were also awaiting the results of a $13 billion auction of 30-year bonds, the third auction in the week's $67 billion of debt sales.

The 2-year yield rose to 0.55%, while the 5-year yield edged up to 1.51%.

The catalyst? The Labor Department said initial jobless claims fell more than expected, to the lowest level in nearly two months.

Simultaneously, the Commerce Department reported that the U.S. trade deficit dropped to $42.8 billion in July. That was down from the deficit of $49.8 billion in the prior month and sharply lower than the $47.3 billion deficit that had been forecast.

"As soon as the economy starts giving us better signals, that's a definite positive for equities, and bonds have been tending to just move the other way," said Carolyn Dolan, a principal at Samson Capital Advisors. "And on a day like today when we get these two positive reports, two things start to go away -- concerns about a deflationary environment and worries about a double-dip [recession]."

But good news one day doesn't necessarily mean more good news the next day, cautioned Giddis.

"I have little doubt that the domestic economy faces more headwinds than tailwinds," said Giddis.

On top of conflicting day-to-day economic data, the debate about extending tax cuts introduced during Bush administration has been hanging over investors. And this uncertainty and uneasiness could also push more traders into the bond market.

"There's a lot of concern about the tax cuts not being extended," said Dolan. "If they do end up being taken away, that could negatively impact job creation, put a cloud over the whole economy and bring back some fears of a double-dip."