NEW YORK (CNNfn) - Treasury bonds edged higher Thursday, but the gains won’t be enough to keep bonds from posting one of the worst years of the decade.
Just before 3:30 p.m. ET, the price of the benchmark 30-year Treasury bond rose 5/32 to 95-31/32. Its yield, which moves inversely to its price, fell to 6.42 percent from 6.44 percent Wednesday.
Analysts said bonds got some support from Thursday’s Chicago Purchasing Management index, which suggested some industrial slowdown in the key manufacturing region. The index fell to a seasonally adjusted 54.6 in December from 56.8 in November.
The number, said Bill Hornbarger, bond analyst at A.G. Edwards, "was relatively friendly for bonds.”
Still, Hornbarger called Monday’s broader national NAPM report, expected to show a manufacturing expansion, of greater significance.
In the day’s other piece of economic data, the number of Americans filing first-time unemployment claims fell to 274,000 last week. But the report, suggesting the nation’s labor market remains tight, had no apparent effect on financial markets.
"We have a surprise dip in jobless claims, but it’s being shrugged off by the bond market,” said Josh Stiles, bond strategist at IDEA Global.com.
Full Fed ahead
Neither piece of economic news is likely to change the view among analysts that the Federal Reserve will begin a cycle of raising interest rates next year in order to cool the buoyant economy.
Dennis Hynes, chief market strategist at R.W. Pressprich, calls a February rate hike definite. He puts the chance of another rate hike in March at 75 percent.
All this rate-hike concern has helped push bonds lower this month and has analysts forecasting another tough year ahead for the fixed-income market.
"The market is extremely oversold,” Hynes said.
Citing data from Lehman Brothers, John Lonski, senior economist at Moody’s Investors Service, said long-term Treasurys have had a negative 8.7 percent return this year as of Tuesday’s close, worse than the minus 6.4 percent performance of 1994.
With United States and world economies strengthening in 1999, bond investors have demanded higher yields to compensate for the expected rise in inflation, which erodes a bond’s value.
While the Federal Reserve hiked interest rates three times this year in an effort to cool the surging economy, the credit tightening has had little apparent effect. Unemployment is near a 30-year low, consumer spending is buoyant and stock markets continue to soar.
And the buoyant stock market, which rose again Wednesday, may have siphoned money away from bonds.
In a note to clients Thursday, Donaldson Lufkin & Jenrette is already worried about a speech on Jan. 20 by Federal Reserve Governor Laurence Meyer.
"Undoubtedly, Gov. Meyer will mention his belief that, over time, low unemployment will generate accelerated wage inflation and accelerate price inflation,” DLJ said.
DLJ said it is has a negative outlook on the bond market next year.
Dollar mixed
The dollar fell against the euro Thursday but rose against the yen. Analysts saw little significance in the moves, citing thin, pre-New Year’s trading.
Just before 3:30 p.m. ET, it cost $1.0073 to buy one euro from $1.0044 Wednesday, a 0.29 percent fall in the dollar’s value. In regional economic news, French unemployment fell 1.7 percent in November,
The dollar, meanwhile, rose to 102.45 yen from 102.14.
Asian and European markets are closed Friday. 
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