NEW YORK: US Treasury yields fell on Wednesday, with benchmark yields hitting over two-week lows, on safe-haven demand and on signs that a lack of inflationary pressures could slow the pace of Federal Reserve interest rate hikes this year.
Analysts said yields fell across the board on Wednesday given views of low inflation, including a slide in oil prices to new 11-year lows. Three-year yields, which are among those considered most vulnerable to Fed rate hikes, hit a more than three-week low of 1.253 percent. Benchmark 10-year yields hit a session low of 2.177 percent.
"Reality suggests that inflation is not going to pick up quick enough for the Fed to hike four times in 2016," said George Goncalves, head of U.S. rates strategy at Nomura Securities International in New York.
The Fed targets 2-percent inflation.
U.S. 30-year yields, which are sensitive to inflation expectations, hit their lowest level in over a week of 2.934 percent. Yields move inversely to prices. Those bonds tends to perform well when inflation expectations are low since inflation erodes their interest payouts.
Traders also bought safe-haven U.S. government debt given risk aversion stemming from China allowing its yuan currency to weaken further and geopolitical worries surrounding a nuclear test by North Korea.
In addition, a PMI survey showed China's services sector activity expanded at its slowest rate in 17 months in December. Analysts said that data fueled worries over global growth, since China is the world's second-biggest economy.
The weaker Chinese yuan also led Treasury yields lower since it was another sign that inflationary pressures in the United States are lacking, said Ellis Phifer, market strategist at Raymond James in Memphis.
He said concerns were growing that lower prices on imported Chinese goods would prevent inflation from rising in the United States, and therefore contribute to a potentially slower pace of Fed rate hikes.
U.S. 10-year Treasury notes were last up 15/32 in price to yield 2.195 percent, from a yield of 2.250 percent late Tuesday. U.S. 30-year bonds were last up 1-8/32 in price to yield 2.948 percent, from a yield of 3.011 percent late Tuesday.
Two-year notes were last up 1/32 in price to yield 1.004 percent, near a two-week low of 0.992 percent touched earlier.
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