U.S. Treasury debt prices slipped Thursday as small stock market gains allowed the bid for safe-haven government debt to ebb.
Throughout the session, fleeting stock market moves and momentary changes in perceptions about financial system risk determined Treasurys' direction.
Notable weakness in U.S. financial stocks generally supported a safety bid for Treasurys. But that bid was vulnerable to any sense of relief, however momentary, in the troubled credit market or to a stock market recovery.
At midday, two-year notes, the typical focus of the safety bid, were down 3/32. Their yields, moving inversely to prices, rose to 2.43 percent from 2.38 percent late Wednesday.
Meanwhile, all three major stock indexes had moved into the plus column.
"It's a stock market trade," said John Spinello, Treasury bond strategist at Jefferies & Co. in New York.
Shares of U.S. mortgage financiers Fannie Maeand Freddie Macwere down 10 percent and 21 percent, respectively, at mid-morning, losses that offered pale reassurance relative to 22 and 33 percent losses in those issues, respectively, earlier in the session.
"Fannie and Freddie are driving the stock market and we're watching stocks watch Fannie and Freddie," said Spinello.
Treasurys also did a bit worse when Federal Reserve Chairman Ben Bernankesaid that the government was focused on helping the financial system, giving stocks momentary gains.
In remarks prepared for the House Financial Services Committee of Congress, Bernanke said financial market turbulence was "ongoing," but that government officials were concentrating on helping the financial system "return to more normal functioning."
At noon benchmark 10-year Treasury notes were down 1/32, their yield rising to 3.82 percent from 3.81 percent on Wednesday.
"Getting to Wednesday's highs in 10-year note (prices)--3.80 percent on the 10-year yield--seems to inspire a little bit of speculative selling," Spinello said. "People seem willing to sell 10-year notes at 3.80 percent and five-years around 3.07 percent and 3.06 percent," he said.
Five-year notes yielded 3.10 percent at midday.
The 30-year bond price fell 9/32, its yield rising to 4.43 percent from 4.42 percent late Wednesday.
An unexpected drop in jobless claims reported by the U.S. Labor Department for the week ended Saturday was discounted by market participants, who suggested that the sharp decline was due to seasonal adjustment misses related to the Fourth of the July holiday and the first week of the quarter.