U.S. Treasurys prices rose on Thursday with benchmark yields hovering at three-week lows ahead of government data that will likely show slower job creation last month due to business disruption caused by Super Storm Sandy.
The bond market was again supported by the Federal Reserve purchases of Treasurys, a pillar of its current monetary policy as it tries to lower historically high unemployment.
The ongoing budget standoff in Washington has underpinned safe-haven demandfor bonds since the U.S. presidential election a month ago.
The possibility that the White House and Congress will fail to reach a dealto reduce the federal deficit by year-end is heightening concern about a $600billion fiscal contraction, dubbed the "fiscal cliff" and a U.S.recession next year.
"There's no resolution with the fiscal cliff and you have the Fedbuybacks. They are driving the market again today," said Andrew Richman,fixed income strategist at SunTrust Private Wealth Management in Palm Beach,Florida.
Benchmark 10-year Treasurys were last up 2/32 in price to yield 1.585 percent, 0.5 basis point lower than late on Wednesday. The 10-year yield touched 1.564 percent earlier, a level not seen in nearly three weeks.
Thirty-year bonds last traded 4/32 higher to yield 2.774 percent, down from 2.780 percent late Wednesday.
Among shorter maturities, two-year notes last yielded 0.242 percent after hitting 0.234 percent earlier, the lowest level since Oct. 4, according to Reuters data.
The U.S. central bank bought a combined $6.1 billion in longer-dated Treasurys in two separate moves for its "Operation Twist" on Thursday.
This bond program, which is set to expire at year-end, is intended to lower mortgage rates and other long-term borrowing costs. It involves the Fed selling its short-dated Treasurys and buying longer-dated issues on the open market.
The Fed is widely expected to launch another bond purchase program next yearto complement its third round of quantitative easing, nicknamed QE3. Fedpolicy makers will likely decide on such a move at their two-day meeting set to begin next Tuesday.
"People may be starting to trade on expectations that once Operation Twist ends, the next QE will be buying intermediate and longer-dated securities without selling the front-end," said James Newman, head of Treasurys and agency trading at Keefe, Bruyette and Woods in New York.
Treasurys prices stretched higher on pessimism that there would be a break through between U.S. President Barack Obama and top Republican lawmakers on attaining a compromise on a long-term solution to pare the country's $16 trillion in debt.
The absence of a budget deal before year-end would trigger a series of spending cuts and tax hikes to be phased in next year, threatening the economic recovery.
With jobs growth remaining a top priority in Washington and at the Fed, a dismal payroll report on Friday will surely fuel anxiety about the fallout from the "fiscal cliff".
U.S. employers likely added 93,000 jobs in November, early half of the gain produced in October, according to economists recently polled by Reuters. The jobless rate likely held at 7.9 percent last month, a level that will supportthe Fed clinging to its ultra-loose monetary policy.
The U.S. Labor Department will release its November payroll figures at 8:30 a.m. EST on Friday.
If the payroll figures fall short of economists' median forecasts, bond prices will likely rise further, even though technical indicators suggest the market is overbought, analysts said.