However, the steepness of the drop in the index's employment component - a fall to 49.1 in December from a robust 60.8 in November - was a surprise. "This is a very bond-friendly report. It was below expectations," said Evan Rourke, bond strategist at Popular Securities in New York City. "It points to a slower manufacturing sector in the Chicago area."
Reacting to the report, the benchmark 10-year note US10YT=RR more than doubled an earlier price gain, climbing 16/32 from the previous day's close. Its yield eased to 4.27 percent from 4.33 percent late on Wednesday.
Two-year notes rose 2/32, their yields easing to 3.10 percent from 3.13 percent earlier in the session.
Five-year notes rose 6/32, their yield easing to 3.65 percent from 3.69 percent on Wednesday.
Thirty-year debt prices rose 1-4/32, more than doubling an earlier gain. Their yields eased to 4.87 percent, from 4.94 percent late Wednesday.
The Chicago manufacturing index is often viewed as a precursor to the nation-wide Institute of Supply Management manufacturing index. That index - one of the earliest readings on the national economy's performance in December - is due next week.
Elisabeth Denison, economist at Dresdner Kleinwort Wasserstein, said all the regional manufacturing indexes seemed to point to manufacturing moderating.
"September and October were very strong. November and December are showing some moderation," she said.
Denison noted that the employment reading on the Chicago index was very high in November.
"We've had strong growth in 2004, helped by lower interest rates and tax incentives for capital spending," she said. "This is starting to fade."
Separately, the Conference Board reported that US newspapers published fewer help-wanted ads in November, further evidence that the jobs market has yet to recover fully.
The Conference Board said its gauge measuring help-wanted ad volume fell to 36 last month, down a point from October.
"The widely awaited turnaround in job growth has yet to arrive," said Ken Goldstein, economist at the Conference Board.
Earlier, the government reported that new jobless claims fell by 5,000 in the latest week to 326,000 - from a revised 331,000 a week earlier.
But the number of people continuing to claim benefits after a week on the rolls rose by 29,000 to 2.76 million in the week of December 18, the latest period for which the figures are available.
The market took little notice of a report that business conditions in New York City improved for a second straight month in December.