NEW YORK: US Treasuries yields fell on Friday as some appetite for bonds returned after investors scrambled for stocks and other risky assets on the view the US Federal Reserve might raise interest rates in 2015 but do so slowly.
Benchmark yields declined from one-week highs as bargain-minded traders reckoned that two days of selling and exit of flattener trades or bets that shorter-term rates would rise faster than longer-term rates were overdone.
On Wednesday, the Fed said it would be "patient" on the timing of a rate hike, depending on domestic growth and inflation, both of which have been running below average.
In response to the somewhat dovish signal, the Standard & Poor's 500 index had gained 4.5 percent in two days. It also bolstered junk bonds and stabilized oil prices that fell to 5-1/2 year lows earlier this week.
"The market overshot. It is just stabilizing after two days of sitting near their recent highs," said George Goncalves, head of US interest rate strategy at Nomura Securities International in New York.
In midday US trading, the 10-year Treasuries yield slipped 3 basis points to 2.176 percent, while the 30-year yield was down 3 basis points to 2.784 percent.
Minneapolis Fed President Narayana Kocherlakota said on Friday rate hikes in 2015 would create "unacceptable" downside risks to US inflation.
Inflation has fallen short of the Fed's 2 percent goal. The recent slide in oil prices has stoked the view the Fed might postpone normalizing rate policy until inflation accelerates.
"There is no structural inflation as far as the eye could see," said Todd Hedtke, vice president of investment management with Allianz Investment Management in Minneapolis.
In the Treasury Inflation-Protected Securities sector, the yield gaps between TIPS and regular Treasuries held firm with the rise in US oil futures, which rose above $56 a barrel .
TIPS value is referenced against the government's consumer price index. On Wednesday, the Labor Department said the CPI fell 0.3 percent in November, its biggest monthly fall in nearly six years as gasoline prices booked their biggest decline since December 2008.
The yield difference between five-year TIPS and five-year Treasuries, which gauges investors' five-year inflation outlook, widened 2 basis points to 1.18 percentage points.
On Tuesday, the five-year TIPS inflation breakeven rate fell to 1.08 points, the lowest since September 2010, according to Reuters data.
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