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Bonds edge up after Draghi comments; US data eyed

U.S. Treasurys rose slightly on Thursday after comments by European Central Bank President Mario Draghi bolstered Treasurys' attractiveness compared with European bonds, but anticipation of Friday's U.S. jobs report kept trading muted.

Draghi said that the ECB's 1 trillion euros-plus bond buying plan could extend beyond September 2016 "if needed," and that the purchases could go down as far as the deposit rate, currently at negative 0.20 percent. Draghi spoke at a news conference in Cyprus following an ECB policy meeting.

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Draghi's comments underscored the likelihood of European yields falling lower in response to the bond-buying program, resulting in U.S. Treasury yields being even more attractive to investors.

"There's a lower yield potential for German yields because Draghi stated that the quantitative easing will include purchases of bonds with yields down to the deposit rates," said Jonathan Rick, interest rate derivatives strategist at Credit Agricole in New York.

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"It creates a lower floor for Bund yields, which is going to drag down U.S. yields as well in the short term."

The Labor Department said Thursday that initial claims for state unemployment benefits increased by 7,000 to a seasonally adjusted 320,000 for the week ended Feb. 28, the highest reading since mid May. The data supported Treasurys prices, which move inversely to yields.

Trading was muted, however, as investors braced for Friday's U.S. employment report for February, which economists polled by Reuters expect will show nonfarm payrolls rose by 240,000. That would mark a decrease from a reading of 257,000 in January.

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"People are going to wait until after the U.S. jobs report to do much," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York.

Traders are watching data closely for signs of when the U.S. Federal Reserve will hike interest rates from rock-bottom levels. Kohli said that if the data shows significant strength, particularly in wage growth or improvement in the unemployment rate, Treasury yields could spike higher.

U.S. 30-year Treasury prices were last yielding 2.72 percent, from a yield of 2.72 percent late Wednesday. Becnhmark 10-year notes were yielding 2.11 percent, from a yield of 2.12 percent late Wednesday.