NEW YORK (MarketWatch) -- Treasury prices advanced on Thursday, pushing long-term yields towards the lowest in at least five months, as investors moved assets out of money market funds, setting up a positive tone for the government to finish its broad slate of auctions this week by selling 30-year bonds.
Analysts say continuing outflows from money-market funds have helped Treasurys of all maturities in the last few weeks, regardless of economic data or supply concerns, as investors move out from ultra-safe, short-term holdings to Treasurys to get a little more yield with relatively low risk and a lot of liquidity.
"There is just a huge amount of cash on the sidelines looking for a home," said Kevin Flanagan, fixed-income strategist at Morgan Stanley Global Wealth Management. "People take the next step out from money markets. That helps explain why we're in a recovery process yet supply is going fine and the market is rallying."
Ten-year note yields (UST10Y 3.17, -0.01, -0.44%) fell 2 basis points to 3.17%. The yield touched 3.16%, the lowest on a closing basis since mid-May.
A basis point is 0.01%. Yields move inversely to bond prices.
Yields on 2-year notes (UST2YR 0.87, +0.02, +2.22%) were little changed at 0.87%.
The current 30-year bond (UST30Y 3.97, -0.03, -0.70%) rose in recent trading, pushing yields down 3 basis points to 3.97%. It's closed once below 4% since April.
Bids for $12 billion in 30-year bonds are due at 1 p.m. Eastern time.
The sale is a reopening, meaning the debt sold has the same maturity and coupon as the originally issued securities. Like most reopenings, the amount was smaller than what was sold in the original tranches.
"If three days of supply has been digested at higher prices each day, what is there other than to expect another 'here today, gone tomorrow' episode with fear of missing the train," John Spinello, Treasury strategist at Jefferies & Co., wrote in an email.
All told, the government will sell $172 billion in debt this week. Analysts paid the closest attention to sales of 3-year (UST3YR 1.38, +0.01, +1.02%) and 10-year notes in the last two sessions, which both received strong demand from investors, again assuaging fears about the government's ability to finance its massive deficit and stimulus programs.
Treasurys had been lower earlier in the session, as the Labor Department said initial claims for state unemployment benefits fell by 33,000 to a seasonally adjusted 521,000 in the week ending Oct. 3. Economists surveyed by MarketWatch expected claims to decline less, to 540,000. Continuing claims also fell. See more on jobless claims.
"Still, the pace of decline is slow and adds to many analysts' concerns that even if the economy is improving, it won't be fast enough to create jobs and lower the unemployment rate," said Ken Jaques, credit and derivatives manager at Informa Global Markets.
A growing chorus saying the recovery will be painfully slow, or even risks falling back into a recession, has helped even longer-term bonds by reducing the risk of rising inflation, Morgan Stanley's Flanagan said.
Thirty-year yield have declined from 4.33% a month ago, while 10-year yields are down from 3.49%.
"The mindset, rightly or wrongly, is that the recovery will be uneven at best, so there is no significant interest-rate risk on the back end," he said.
Separately, Treasurys got a boost as comments from European Central Bank President Jean-Claude Trichet supported German bunds and helped lift U.S. debt.
