Treasurys turn down after jobless claims

NEW YORK (MarketWatch) � Treasury prices turned up on Thursday, leaving yields near the lowest in at least two months, after a report showed the service sector of the U.S. economy expanded in April at a slower pace than expected.

The data is the last traders� look at before the monthly government�s nonfarm payrolls report, coming out Friday. Recent tidbits on the U.S. labor market have been mixed.

�It�s time for folks to either accumulate dry power or pick a side,� said Michael Gambale, an analyst at Informa Global Markets. �Most that we have spoken today suggest that dry powder and lightening up on both sides of the fence is prudent, since the uncertainty surrounding tomorrow�s payroll is fairly high.�

Yields on 10-year notes 10_YEAR , which move inversely to prices, were little changed at 1.93%, from as high as 1.96% in earlier trading.

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The benchmark security�s yield level is near its lowest since late February.

Thirty-year-bond yields 30_YEAR slipped 1 basis point to 3.12%. A basis point is one one-hundredth of a percentage point.

Yields on 5-year notes 5_YEAR �traded 0.82%, also near their lowest in about two months.

The Institute for Supply Management�s index on the nonmanufacturing sector of the U.S. economy fell to 53.5% last month � its lowest reading since December. See story on ISM.

The report could lower traders� expectations for a key employment report on Friday, said analysts at CRT Capital Group.

Treasury prices were little changed through the Asian and European session, then dropped after a report showing U.S. jobless claims fell more than forecast to 365,000 in the latest week.

It was the first drop in a month, and fell to just slightly above a four-year low, according to the Labor Department. Read story on jobless claims.

�The return of claims to their March levels strengthens our belief that the labor market did not derail in April,� said economists at RBS.

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The data come a day before the government�s monthly unemployment report for April � one of the most closely watched indicators of the economy�s strength.

Economists surveyed by MarketWatch predict U.S. nonfarm payrolls gained by 163,000 last month, up from 120,000 in March. See economic calendar.

�We still believe that there will be a bit of a payback after the upward bias provided by the warm winter,� said Steven Ricchiuto, chief economist at Mizuho Securities. �This leaves us with a 150,000 to 175,000 payroll estimate. A number would have to be below 125,000 to signal an unexpected slowing in the pace of new hiring.�

Earlier this week, benchmark 10-year note yields closed at their lowest level since late February as a string of U.S. data over recent weeks left investors disappointed. Read recent Bond Report.

Also, investors are worried about Europe�s political ability to stick with budget cuts in key countries needed to get their debt under control, as protests grow louder and leaders show signs of losing political support.