US Treasury yields rise after jobless claims, investors focus on new data

By Tatiana Bautzer

NEW YORK, Dec 5 (Reuters) - U.S. Treasury yields were higher on Thursday morning as investors digested slightly higher jobless claims data ahead of the more significant nonfarm payrolls data expected on Friday.

The yield on the benchmark U.S. 10-year Treasury note rose 2.9 basis points to 4.211%. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, rose 5.6 basis points to 4.177%.

The part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , seen as an indicator of economic expectations, flattened to 3.2 basis points.

The number of Americans filing new applications for unemployment benefits increased moderately last week, suggesting the labor market continued to steadily cool. Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 224,000 for the week ended Nov. 30, the Labor Department said on Thursday. Economists polled by Reuters had forecast 215,000 claims for the latest week.

"Jobless claims were much ado about nothing; even with the 9,000 bump in the most recent filing week, claims remain at a very low level. Meanwhile, continuing claims remain elevated, showing the slow firing and hiring trend in the U.S. labor market," said Jason Ware, chief investment officer and chief economist at Albion Financial Group in Salt Lake City.

Markets are now shifting focus to more relevant data about the job market and inflation scheduled to be released ahead of the Dec. 17-18 Federal Reserve meeting, said Mike Lorizio, senior fixed income trader at Manulife Investment Management in Boston.

"Between now and the meeting, there's so much economic data, the payrolls on Friday, CPI and PPI next week, markets will look at the numbers as crucial to (the) Fed's decision," he said.

Fed Chair Jerome Powell appeared to signal on Wednesday support for a slower pace of rate cuts ahead, when he said the economy was stronger at this point than the central bank had expected in September. San Francisco Fed President Mary Daly added there was "no sense of urgency" on reducing borrowing costs further.

But markets still see high odds of a 25-basis point rate cut in this month's meeting. CME's FedWatch tool on Thursday showed a 73.8% chance of a December rate cut, slightly lower than the 75% chance late on Wednesday.

Comments from Richmond Fed President Thomas Barkin are due later in the day.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.386% after closing at 2.383% on Dec. 4. The 10-year TIPS breakeven rate was last at 2.291%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Tatiana Bautzer; editing by Jonathan Oatis)