Correction to U.S. Government Bonds Story

By Daniel Kruger Features Dow Jones Newswires

U.S. government bonds swung around the flatline after the European Central Bank said it would reduce the size of its bond purchases starting next year, though it said it could increase them again should inflation fail to materialize.

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The yield on the benchmark 10-year U.S. Treasury note rose to 2.449%, according to Tradeweb, from 2.444% Wednesday. Bond yields rise as prices fall.

The ECB is reducing its purchases to EUR30 billion ($35 billion) a month, starting in January and running through September, and intends to hold interest rates at their current negative 0.4% for some time after the purchases end. ECB President Mario Draghi had sought to avoid sparking widespread selling of bonds by signaling to investors the bank would act judiciously in paring stimulus.

"The market was concerned they'd turn the spigot off too quickly," said Mark MacQueen, who manages bond portfolios at Sage Advisory. "The market's quite happy with what they're hearing."

Investors are also watching the potential impact of a possible leadership change at the Federal Reserve.

Much recent speculation among investors about the next Fed head has begun to coalesce around Stanford economics professor John Taylor and current Fed governor Jerome Powell, according to Alex Li, head of U.S. rates strategy at Crédit Agricole. While Mr. Powell is seen as a continuation of the status quo, Mr. Taylor could push interest rates higher at a faster pace than the market is currently expecting, Mr. Li said.

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Bond yields currently reflect expectations for a Fed rate increase this year and another next year, which would likely change depending on the path of future inflation data, Mr. Li said. "The bias is for yields to go higher, but at a very measured pace."

Write to Daniel Kruger at daniel.kruger@wsj.com

Corrections & Amplifications

This was corrected at 2:08 p.m. ET because the original misstated that the yield on the benchmark 10-year U.S. Treasury note rose to 2.434%.

The yield on the benchmark 10-year U.S. Treasury note rose to 2.449%, according to Tradeweb, from 2.444% Wednesday. "U.S. Government Bonds Steady as ECB Tapers," at 12:30 p.m. ET, misstated the yield.

(END) Dow Jones Newswires

October 26, 2017 14:22 ET (18:22 GMT)