U.S. government bonds prices climbed for a second consecutive day, pushing the yield on the 10-year note back below 2.2% as declines in U.S. stocks drove investors to assets considered safe.
The yield on the benchmark 10-year Treasury note fell to 2.197% Thursday, compared with 2.224% Wednesday. Yields fall when bond prices rise.
Major U.S. stock indexes slid and a measure of expected equity market turbulence, the CBOE Volatility Index, jumped about 32%, the most since Aug. 10, when tensions between North Korea and the U.S. jarred markets. The S&P 500 recorded its largest one-day decline since May 17, falling 1.5%, with all of its 11 sectors declining together for the third time this year.
"Equities have continued to drip lower, and that's generated a little bit of buying in the interest-rate markets," said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia.
Mr. Lebas added that volumes in the government bond market have been thin this week. Meanwhile, Treasury trading has been muted this summer. Over the past 90 days, the yield on the 10-year Treasury note has been trading in its tightest range since a 90-day stretch ending in August 1972, according to the WSJ Market Data Group.
One factor behind the buying, investors said, was growing ambiguity about the path of inflation and future interest-rate increases. On Wednesday, minutes from the July Fed meeting showed a split in how officials preferred to address tepid inflation figures. Some preferred to be more patient about raising rates, while others suggested that inflation could still accelerate and become difficult to contain without more action from the central bank.
The disagreement rekindled doubts about whether the Fed would again raise interest rates this year, helping spur a rebound in Treasurys Wednesday after two days of declines.
Inflation is a threat to Treasury bond prices because it erodes the purchasing power of government bonds' fixed payments.
Economic data have been fairly consistent in recent months, suggesting the economy continues to grow at a slow but steady pace, while inflation pressures remain muted. Most recently, the government bonds have rallied in response to lower-than-expected sales from auto makers and sold off after more comprehensive retail sales data for July beat analysts' expectations.
On Thursday, traders also remained on edge for more fallout from President Donald Trump's controversial response to recent violence in Charlottesville, Va., after two of his business councils disbanded Wednesday. An apparent terrorist attack in Barcelona further added to the jitters, sending stocks and Treasury yields lower.
Treasurys briefly surged Thursday morning as unconfirmed rumors swirled that Gary Cohn, Mr. Trump's National Economic Council director, was resigning from his position. Two White House aides told The Wall Street Journal that Cohn hasn't resigned and isn't planning to do so.
Though yields quickly reversed, investors and analysts said the response showed traders were closely following events at the White House, which could spill over to financial markets.
"I don't see the market getting too far carried away" but any uncertainty about the Trump administration "is going to create a flight to safety," said Mary Ann Hurley, vice president of fixed income trading in Seattle at D.A. Davidson & Co.
Sam Goldfarb contributed to this article.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
(END) Dow Jones Newswires
August 17, 2017 17:45 ET (21:45 GMT)