Treasuries rise after initial claims disappoint

NEW YORK (CNNMoney) -- Investors flocked to safe-haven Treasury bonds, after a report on jobless claims came in weaker than expected.

The government's report on weekly unemployment claims slightly toned down investors' optimism about the jobs picture, driving stocks down and bonds up Thursday.

The price on the benchmark 10-year note rose Thursday, sending its yield down to 3.42%, after closing at 3.47% on Wednesday. Prices and yields move in opposite directions.

Yields for the 30-year Treasury bond dropped to 4.52%, while the 5-year note slid to 2.08% and the 2-year note fell to 0.69%.

Bond traders are looking ahead to Friday's jobs report, which is expected to show employers added 150,000 people to their payrolls in December -- a major improvement over the 39,000 added the month before.

Investors are already counting on a strong jobs number, said William Larkin, portfolio manager with Cabot Money Management. And it would take a much better-than-expected report to push the 10-year yield back above 3.50%, he added.

"Bond participants are nervous about this report -- there is possibility that this is going to haunt the market," Larkin said.

Initial jobless claims rose 18,000 to 409,000 last week, the Department of Labor reported Thursday morning.

Still, Larkin said, the underlying trend for jobs remains an improving one.

"People are going to be making bets on the report," he said. "But it's likely that a lot of good news is priced into that number."

The initial claims four-week moving average, which is calculated to smooth out the volatility of the week-to-week numbers, was down to a two-year low. Economists are predicting a solid number from the jobs report on Friday.