DATE: Thursday 01/04/2007 at 10:15 AM (Eastern)

Bonds were lackluster Thursday morning as investors moved to the sidelines ahead of Friday's closely watched employment report. Treasury prices are higher on somewhat weak economic reports.

The benchmark 10-year note added 7/32, to yield 4.63 percent, down from 4.66 percent late Wednesday. Bond prices and yields move in opposite directions.

The 30-year bond gained 13/32, to yield 4.73 percent, down from 4.77 percent the previous session.

On the economic front, reports on factory orders and the services sector were slightly off the mark. November factory orders rose just 0.9% as durable goods orders were revised to a smaller 1.6% gain (from 1.9%) and non-durable goods orders were flat. November factory orders were expected to have grown 1.4 percent during the month after having fallen 4.7 percent the previous month. The ISM Services index came in close to expectations at 57.1 in December from 58.9 the month before.

But investors are more focused on the Labor Department's jobs report, due Friday, which may offer clues as to whether the Federal Reserve will start cutting the target for its key short-term interest rate anytime soon.

Jobless claims rose slightly more than expected, and both Gold and Oil are lower. All this is supporting the Treasuries and pointing to yields easing for the short term.

On Wednesday, minutes from the Fed's last meeting showed central bank policymakers were still concerned about inflation, even though economic growth had cooled.

That's led some investors to believe the Fed may not start cutting rates until later in 2007 than had been previously expected.

Friday's Jobs report at 8:30 am Eastern may bring volatility to the market. Analysts are expecting 115,000 new jobs, however the ADP report earlier this week indicated much weaker numbers.

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