Treasurys Rebound After 30-Year Bond Auction

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U.S. government bond prices edged lower Thursday after minutes from the European Central Bank's December meeting hinted at an end to the central bank's giant bond-buying program.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.562%, according to Tradeweb, compared with 2.551% Wednesday. Yields rise when bond prices fall.

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At their December meeting, ECB officials "widely" agreed that the bank needed to change its guidance to investors early this year to better reflect the eurozone's economic recovery, according to the minutes.

The ECB announced in October it would extend its bond-buying program, known as quantitative easing, through September 2018 at half of its current pace from January. But it didn't announce a concrete end-date to the program, sparking criticism from some top officials including the German and Dutch central-bank governors.

"When the headlines came from the ECB this morning about the potential gradual shift in guidance it sort of changed the calculus" for investors, said Russ Certo, managing director rates at Brean Capital LLC.

Ending the ECB's monetary stimulus would be a major development for financial markets because the program is thought to have helped drag down bond yields globally. The central bank has been buying both government debt and corporate bonds. That has curtailed the supply of European debt and driven up demand for U.S. fixed-income assets, which offer higher interest rates.

The latest signal from the ECB had a larger impact in Europe, where the yield on the 10-year German bond jumped to 0.528% in recent trading from 0.456% just before the minutes were released, according to Tradeweb.

Speculation among investors that major central banks could be moving away from postcrisis stimulus policies has been one factor driving U.S. Treasury yields higher in recent weeks. Bond investors have also becoming increasingly nervous about the prospect of inflation rising, given a run of encouraging U.S. economic data and the recent passage of tax cuts that many believe could further boost the economy.

The yield on the 10-year Treasury note has been trending upward since it fell below 2.1% in early September. It is now approaching its 52-week closing high of 2.609%, set March 13.

Earlier in the overnight session, Treasurys prices had climbed after Chinese officials denied their government was considering slowing or stopping purchases of Treasurys. A news report that China was looking at such a move had helped depress demand for Treasurys early Wednesday, but Treasurys rallied later in the day after an auction of 10-year Treasurys drew strong demand.

Many investors and analysts are skeptical that China would dramatically reduce its reserves of Treasury debt, which currently stand at around $1.2 trillion.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

U.S. government bonds strengthened Thursday, recovering from earlier declines after an auction of 30-year Treasury bonds attracted unexpectedly strong demand.

Though a bout of recent selling has pushed Treasury yields to their highest levels in months, the results of the $12 billion, 30-year bond auction showed some investors see the move as a buying opportunity.

Sold at a 2.867% yield, the debt drew the largest demand of a 30-year auction, relative to its size, since December 2014, according to BMO Capital Markets. Existing 30-year bonds had been trading at a 2.888% yield just before the auction, according to Tradeweb.

Riding momentum from the 30-year sale, the benchmark 10-year Treasury note also rallied, pushing its yield down to 2.531% at the 3 p.m. close from 2.551% Wednesday. Yields fall when bond prices rise.

The 30-year auction showed "very clearly that investors are still buying U.S. Treasurys," said Kevin Giddis, head of fixed-income capital markets at Raymond James.

Earlier Thursday, Treasurys had extended recent declines after minutes from the European Central Bank's December meeting hinted at an end to the central bank's giant bond-buying program.

ECB officials "widely" agreed that the bank needed to change its guidance to investors early this year to better reflect the eurozone's economic recovery, according to the minutes.

The ECB announced in October it would extend its bond-buying program, known as quantitative easing, at a reduced pace through September 2018. But it didn't set a concrete end-date to the program, sparking criticism from some top officials including the German and Dutch central-bank governors.

Ending the ECB's monetary stimulus would be a major development for financial markets because the program is thought to have helped drag down bond yields globally. The central bank has been buying both government debt and corporate bonds. That has curtailed the supply of European debt and driven up demand for U.S. fixed-income assets, which offer higher interest rates.

The latest signal from the ECB had its largest impact in Europe, where the yield on the 10-year German bond settled at 0.522%, according to Tradeweb, up from 0.456% just before the minutes were released.

Speculation among investors that major central banks could be moving away from postcrisis stimulus policies has been one factor driving U.S. Treasury yields higher in recent weeks.

Bond investors have also becoming increasingly nervous about the prospect of inflation rising, given a run of encouraging U.S. economic data and the recent passage of tax cuts, which many believe could provide a further boost to the economy.

Inflation is a primary threat to bonds because it erodes the purchasing power of their fixed payments.

For the past year, inflation data has puzzled many investors and economists by remaining soft even as the labor market continued to tighten and economic growth accelerated. Closely watched consumer-price index data will get an update on Friday, giving investors a better sense of the current inflation environment.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

January 11, 2018 16:08 ET (21:08 GMT)