NEW YORK: US long-dated Treasury debt yields edged lower on Thursday in thin trading, weighed by a slump in oil prices, which suggested that inflation would remain benign.
A rise in weekly U.S. jobless claims added to pressure on yields, with both benchmark 10-year note and 30-year bond yields dipping to session lows.
Yields on the short-end, on the other hand, were little changed to slightly higher on the day, supported by expectations of an impending interest rate hike by the Federal Reserve, which would be the first rate increase in nine years.
But it has been the decline in the price of oil that continues to roil the Treasury market.
"Overall, the market believes that oil has not found a bottom yet. So that's driving flows into U.S. Treasuries," said Sharon Stark, chief fixed income strategist, at DA Davidson in St. Petersburg, Florida.
U.S. crude fell to a near seven-year low on Thursday amid a global glut, with prices seen vulnerable to further weakness until year-end. Brent futures were down more than 11 percent this month and, having dipped below $40 per barrel, may test 2008's low around $36.
In late morning trading, U.S. 10-year notes fell 4/32 in price to yield 2.223 percent, slightly down from Wednesday's 2.224 percent. Yields on the 10-year hit the day's low of 2.206 percent after U.S. jobless claims increased 13,000 to 282,000 for the week ended Dec. 5, the highest since early July.
The 30-year bond was down 4/32 in price to yield 2.967 percent, down from 2.977 percent on Wednesday.
U.S. two-year notes meanwhile, slipped 1/32, with a yield of 0.939 percent. Last week, two-year yields rose to a roughly 5-1/2 year high of 0.994 percent.
U.S. three-year notes, meanwhile, were down 1/32 in price to yield 1.244 percent, slightly above Wednesday's 1.237 percent.
Investors are also focused on a $13-billion U.S. 30-year bond auction later in the session.
Despite the yield on Wednesday's 10-year auction coming above market expectations, analysts at Nomura Securities said demand statistics showed underlying interest was strong, which could suggest a healthy 30-year auction.
"Given the rising expectation for a dovish hike - slower hiking pace and lower terminal rate - and possible pre-FOMC flattening positioning into next week, long-end paper may enjoy a better bid."
In recent months, there has been a flattening of the yield curve - higher rates on the front-end than on the back-end - which essentially reflects expectations of a Fed tightening.
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