June 17, 2010 / 1:23 PM / in 8 years

TREASURIES-U.S. debt prices inch up after jobless claims

* Higher-than-expected initial jobless claims boost bonds

* Inflation looks tame with CPI as expected

* ‘Successful’ Spanish auction boosts euro, stocks

By Emily Flitter

NEW YORK, June 17 (Reuters) - U.S. Treasury prices gained slightly on Thursday after jobless claims unexpectedly rose for the week, while inflation data came in as forecast, showing a drop in prices for consumers.

Bond investors watch inflation data carefully for signs that prices--and therefore interest rates--could begin to rise, thus devaluing their bond holdings. But Thursday’s data showed no inflation, while the jump in initial jobless claims heralded more choppiness in the economic recovery--another positive for safe-haven Treasuries.

“The data are pretty bond-friendly overall,” said Jim DeMasi, chief fixed income strategist at Stifel Nicolaus in Baltimore. “With the rise in jobless claims, it is consistent with the view that the recovery is going to fairly moderate. We are not going to get the kind of job growth and therefore GDP growth, which is going to generate inflation.”

Higher stock index futures contained Treasuries’ price increases, as the government bond market dutifully adhered to its inverse correlation with the stock market for another day, while yields stayed wedged into a tight range.

U.S. stocks looked set to open higher following a global rally in equities and a rebound in the euro spurred in part by Spain’s auction of 10-year and 30-year bonds, which market participants considered to be a success even though its bid-to-cover ratio was weaker and yields on both maturities rose significantly. For more, click on [ID:nLDE65G1HJ]

Treasury traders said bonds could slide back into losses if stock market gains looked as though they could stick at least until the end of the day.

“It’s more of a day-trading environment right now with a range of six to eight basis points in the 10-year note,” said John Spinello, Treasury bond strategist at Jefferies & Co. in New York.

“The information we have right now will probably keep us range-bound.”

Jobless claims for the week registered at 472,000, up from a revised 460,000 last week and higher than analysts’ expectations. Analysts polled by ThomsonReuters expected jobless claims to fall to 450,000 this week. [ID:nLLAHHE619]

Consumer prices, meanwhile, fell 0.2 percent in May, the largest decline since December 2008. The drop matched analysts’ expectations. [ID:nLLAHHE618]

Benchmark 10-year Treasury notes US10YT=RR traded 3/32 higher in price to yield 3.26 percent, down from 3.27 percent late on Wednesday.

Two-year Treasury notes US2YT=RR were unchanged in price to yield 0.73 percent, down from 0.74 late on Wednesday, while the 30-year Treasury bond US30YT=RR was off 2/32 to yield 4.19 percent, up from from 4.18 percent. (Additional reporting by Richard Leong) (Editing by Theodore d‘Afflisio)

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