NEW YORK: US Treasuries yields rose on Thursday as Wall Street stock prices rose a day after US Federal Reserve's signal that it might raise interest rates in 2015 but would do so at a gradual pace.
Most US government yields touched one-week highs as some traders exited earlier curve flattener positions that were based on the view the US central bank would raise short-term rates even as domestic growth remains subpar and inflation falls short of its 2 percent goal next year.
"The Fed used soft language that the market would take comfort in, especially equities," said Dan Heckman, senior fixed income strategist at US Bank Wealth Management in Kansas City.
On Wednesday, the Federal Open Market Committee, the central bank's policy-setting group, said it would be "patient" on timing for a rate hike, depending on domestic growth and inflation, both of which have been running below average.
The stunning drop in oil prices in recent weeks and persistent economic weakness in Europe and Japan had reduced market expectations that the Fed in 2015 would boost rates from the near-zero levels adopted six years ago during the global financial crisis.
Still, evidence of further improvement in the labor market and Fed forecasts that inflation would pick up have kept the start of rate normalization on track for sometime in 2015, according to the latest FOMC statement.
On Thursday, the US Labor Department said first-time filings for state jobless benefits declined by 6,000 to 289,000 for the week ended Dec. 13.
On the other hand, the Philadelphia Federal Reserve said it index on business conditions in the Mid-Atlantic region fell in December from the November reading which was the highest since December 1993.
While Thursday's economic snapshots were mixed, they supported the view that there might be enough momentum for the US economy to expand at a moderate 2.5-3.0 percent pace in 2015 without near-zero interest rates, analysts said.
In light of this outlook, major US stock indexes rose with the Standard & Poor's 500 last up 1.2 percent.
Benchmark 10-year note yield was 2.215 percent, up 6.5 basis points from late on Wednesday.
The yield spreads between short- and long-dated Treasuries grew as traders closed out curve flattener trades.
"Flatteners have had a big run this year. People are booking some of their gains," Heckman said.
The gap between two-year and 10-year yields expanded to 1.58 percentage points from 1.54 points on Wednesday. It reached 1.51 points, its tightest level in 19 months on Tuesday.
Despite a renewed drop in oil prices, Treasury Inflation-Protected Securities (TIPS) showed some stabilization ahead of a $16 billion auction of five-year TIPS supply at 1 p.m. (1800 GMT). The TIPS sector has been hammered by the steep drop in crude prices from their peak in June.
January US crude futures fell 93 cents to $55.55 a barrel. On Tuesday, they fell to 5-1/2-year low of $53.
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