Treasury debt prices gain

US Treasury debt prices rose on Thursday, boosted by solid demand for 7-year notes and comments from President Donald Trump saying he wants a strong dollar, contradicting comments by Treasury Secretary Steven Mnuchin a day earlier. US benchmark 10-year note and 30-year bond yields, which move inversely to prices, hit session lows following Trump's remarks on the dollar.
Trump, who is scheduled to speak on Friday at the World Economic Forum in Davos, Switzerland, said in an interview with CNBC on Thursday that he ultimately wants the dollar to be strong. He added that Mnuchin's comments had been misinterpreted. Treasury prices fell on Wednesday after Mnuchin backed a weaker dollar to help boost America's global trade, breaking from the traditional strong currency policy of past administrations. Analysts said a weaker dollar could diminish the attractiveness of dollar-based assets such as Treasuries.
"Clearly there was some blowback on the Mnuchin 'weak dollar ok' comments and perhaps the president felt the need to calm the waters ahead of his Davos speech tomorrow," Action Economics said in a blog on its website.
"Yields are extending their reversal lower as this seems to imply the FX rug won't be pulled out from under foreign investors after all," it added. Treasury prices were also helped by strong demand for US 7-year notes in an auction.
The note picked up a yield of 2.565 percent, the strongest level since April 2011. The yield also came in well below the expected 2.577 at the bid deadline. There were nearly $76.5 billion in bids for a 2.73 bid-to-cover ratio, matching the level set 13 months ago. This ratio was 2.55 at the prior 7-year note sale in December.
In mid-afternoon trading, benchmark US 10-year note yields fell to 2.626 percent, down from Wednesday's 2.654 percent.
US 30-year bond yields also dropped to 2.888 percent, down from 2.937 percent late on Wednesday. The yield on this maturity touched a 3-1/2-month peak the previous session. After the auction, US 7-year note yields fell to 2.551 percent, down from 2.579 percent on Wednesday.
Earlier on Thursday, prices fell in tandem with gains in those of euro zone bonds after European Central Bank President Mario Draghi cited the region's "solid and broad" growth and said inflation was likely to rise in the medium term. The yield on benchmark 10-year German government bonds hit a six-month high of 0.579 percent following Draghi's remarks.