U.S. Treasury prices added to gains Thursday following a strong auction of long-duration bonds, while a rally in stocks faded and worries about Europe's financial stability returned.
The modest $13 billion sale drew a big crowd, producing a below-expected high yield of 3.12 percent. The bid-to-cover ratio, which measures demand by comparing the amount bid to the total auction, was a robust 2.94.
Following the auction, 30-year bonds rallied to gain nearly 2 points in price, sending the yield down to 3.11 percent.
The Federal Reserve's latest program to lower long-term interest rates, which the market has dubbed "Operation Twist," helped provide some support for 30-year bond prices.
The Fed has pledged to purchase a hefty portion of 30-year bonds over the coming months, reducing supply in the Treasury market.
Earlier, the market showed little reaction to news that Slovakian lawmakers approved expanding the size and powers of the European Union bailout fund, the European Financial Stability Facility (EFSF), overcoming an earlier rejection and removing the last hurdle to the fund's use as the continent's main weapon against the sovereign debt crisis.
Treasurys rallied as worries about a global economic slowdown were fueled by a report showing China's trade surplus fell, with exports lower than expected. Meanwhile, euro zone leaders' talk of bank recapitalization plans failed to completely captivate market participants.
"We read from Deutsche Bank's chairman [Josef] Ackermann that he expects Germany to grow 1 percent in 2012, challenging recapitalization programs," wrote David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut.
"EU headlines regarding banks' plans lack the credibility implied by the price action. And so we correct," Ader wrote.
Joe Leary, a trader at Citigroup in New York, noted that liquidity was very low. "No one wants to take risk. It's the end of the year. The volatility's really high and you have a 30-year auction at the end of the day, so any move is going to be proliferated," he said.
Traders shrugged off a weekly jobless claims report that many saw as a faintly positive sign for the economy, which would normally spur selling in Treasurys.
"We get some good data, but minutes later it seems like people realize the U.S. is vulnerable to influences from the outside," said Jeffrey Greenberg, economist at Nomura Securities in New York.
New U.S. claims for unemployment benefits edged down last week, according to a government report Thursday that pointed to a modest improvement in the labor market at the start of the fourth quarter.
The 30-year bond was last trading 1 15/32 higher in price and yielding 3.13 percent, down from 3.24 percent at Wednesday's close. The benchmark 10-year Treasury note was last yielding 2.14 percent, against 2.26 percent late Wednesday.