NEW YORK (AP) -- Treasury prices fell Thursday as investors, already anticipating an end to the Federal Reserve's rate-cutting campaign, found another reason to sell government bonds when a report showed a surprising drop in unemployment claims.
Investors have been concerned about the weak economy's effect on the labor market, and grew a little less worried after the Labor Department said initial claims for unemployment benefits fell by 33,000 last week to 342,000. Economists had forecast that claims last week rose by 3,000.
The four-week moving average - which helps investors look past week-to-week volatility - also fell, dropping by 7,250 to 369,500.
The government data followed a Wall Street Journal report predicting the Fed will probably lower its benchmark fed funds rate by another quarter point when it meets next week, but then take a pause.
A halt in rate cuts would indicate either that an economic recovery is in sight, or that inflation is becoming a bigger threat than slowing growth. Neither scenario makes Treasurys appear particularly attractive.
"It seems for right now the financial crisis to some extent has been taken out of the equation," said T.J. Marta, fixed-income analyst at RBC Capital Markets. "Now we're looking at growth versus inflation, and it's a highly contradictory picture ... It's probably going to be September before we know which way it's going to go."
The benchmark 10-year Treasury note fell 27/32 to 97 8/32 and yielded 3.84 percent, up from 3.74 percent late Wednesday, according to BGCantor Market Data. Prices and yields move in opposite directions.
The 30-year long bond fell 30/32 to 97 2/32 and yielded 4.56 percent, up from 4.51 percent late Wednesday.
The 2-year note fell 11/32 to 99 15/32 with a yield of 2.40 percent - well above the target federal funds rate of 2.25 percent, and up sharply from 2.20 percent late Wednesday.
The 5-year note fell 22/32 to 97 7/32 after the U.S. Treasury awarded $19 billion in 5-year notes at a high rate of 3.16 percent. Demand was weak, with a very low bid-to-cover ratio of 1.65.
While prices of outstanding government debt appeared little affected by the auction results, the weak demand contributed to the overall downbeat tone of trading.