NEW YORK: US Treasury prices rose on Thursday with short- and medium-dated yields retreating from 10-week highs, ahead of a $28 billion sale of seven-year notes, the final leg of this week's $88 billion in longer-dated government debt supply.
Bargain-minded investors emerged following the backup in U.S. yields the previous two sessions, while some fund managers added longer-dated Treasuries for month-end rebalancing in an effort to match expected changes of their portfolio benchmarks, analysts said.
"The dip-buying is definitely there. Also some in the market don't think the Fed could hike rates any time soon," said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York.
Treasury yields are higher than a week earlier, prompted by hawkish minutes on the Fed's April policy meeting and comments from several Fed officials who suggested a rate increase could come as early as June if the economy recovers from a weak first quarter.
On Thursday, St. Louis Fed President James Bullard said he thought traders interpreted the April minutes "correctly."
The jury is still out on whether domestic data is strong enough to support a rate increase from the Fed's current 0.25-0.50 percent target range, analysts said.
The government said on Thursday orders for durable goods jumped 3.4 percent in April but the proxy for business spending plans fell for a third straight month. On the other hand, initial jobless claims declined more than forecast last week, suggesting a resilient labor market.
Interest rates futures implied traders saw a 34 percent chance the Fed would raise rates at its June 14-15 policy meeting and a 57 percent chance at its July 26-27 meeting, according to CME Group's FedWatch program.
Benchmark 10-year Treasury notes were up 5/32 in prices, yielding 1.853 percent, which was down 2 basis points from late on Wednesday.
Two-year yield was down nearly 3 basis points at 0.891 percent, while five-year yield slipped over 2 basis points at 1.380 percent.
On Wednesday, two-year and five-year yields reached their highest in 10 weeks at 0.938 percent and 1.424 percent, respectively.
Analysts expected solid demand at the latest auction of seven-year note issue at 1 p.m. (1700 GMT) following brisk bidding for two-year and five-year supply the prior two days.
In "when-issued" activity, traders expected the latest seven-year supply to sell at a yield of 1.673 percent , which would be the highest at an auction for this maturity since January, Tradeweb data showed.
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