(Updates with market activity) By Ross Kerber Aug 5 (Reuters) - Traders sent U.S. Treasury yields higher on Thursday as risk sentiment improved after a healthy jobless claims report, ahead of more detailed employment data due tomorrow. The benchmark 10-year yield was up 3.5 basis points at 1.2185% in afternoon trading. Labor Department figures showed initial claims for state unemployment benefits fell last week, while layoffs dropped to their lowest level in 21 years in July as companies held on to their workers amid a labor shortage. The department"s closely watched July employment report is due for release on Friday. Stock indexes rose after the report and bond yields seemed to move in tandem, said Subadra Rajappa, head of U.S. rates strategy for Societe Generale. She cited "an improvement in risk sentiment overall." The pace of job creation will be a key indicator for U.S. Federal Reserve officials deciding how quickly to taper bond-buying programs that have propped up markets throughout the COVID-19 pandemic, Central bank officials will want to see employers adding between 500,000 to 1 million jobs a month in order to be able to announce the start of a taper late this year, Rajappa said. The trading moved higher a closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations. It was at 101 basis points, about two basis points higher than Wednesday"s close The yield on 10-year Treasury Inflation Protected Securities was -1.098% after setting a record low of -1.216% on Wednesday. The 10-year TIPS break-even inflation rate was at 2.317%, lower than on Tuesday. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 2.2 basis points at 0.2039%. August 5 Thursday 1:17 PM New York / 1717 GMT Price Current Net Yield % Change (bps) Three-month bills 0.05 0.0507 0.000 Six-month bills 0.05 0.0507 0.000 Two-year note 99-216/256 0.2039 0.022 Three-year note 99-254/256 0.3777 0.038 Five-year note 99-136/256 0.7209 0.047 Seven-year note 99-236/256 1.0116 0.046 10-year note 103-188/256 1.2185 0.035 20-year bond 108-28/256 1.7624 0.018 30-year bond 111-184/256 1.8605 0.020 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.25 0.50 spread U.S. 3-year dollar swap 11.75 0.25 spread U.S. 5-year dollar swap 8.75 0.25 spread U.S. 10-year dollar swap 2.25 0.50 spread U.S. 30-year dollar swap -26.00 0.25 spread (Reporting by Ross Kerber in Boston) Our Standards: The Thomson Reuters Trust Principles.