US Treasury yields fell on Thursday with benchmark yields retreating from a four-week high, after strong investor demand at a $28 billion auction of seven-year notes, part of this week's $88 billion coupon-bearing government debt supply.
Skittishness about a faster pace of rate increases by the Federal Reserve, if US President Donald Trump's economic policies bolster growth and inflation, cast a pall over this week's Treasuries sales.
Indirect bidders which include fund managers and foreign central banks bought a record share of the latest seven-year issue, marking a contrast to the poor auctions of two-year and five-year Treasuries on Tuesday and Wednesday.
"The seven-year sale was better than other two," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York. "It seemed like we were oversold. It may have been some short-covering."
On Tuesday and Wednesday, investors reduced their Treasuries holdings in the wake of Trump's actions on domestic business investments, which they view as promoting heftier company profits, and his rhetoric on trade and immigration, which they calculate may push up inflation.
Buttressed by growing optimism, investors have preferred stocks over bonds, with the Dow breaking above 20,000 for the first time on Wednesday and the S&P 500 and Nasdaq also reaching record highs.
"The new administration is a big change from the previous one. Political risks have pushed yields up and down," said Boris Rjavinski, senior rate strategist at Wells Fargo Securities in Charlotte, North Carolina.
The yield on benchmark 10-year Treasury notes was down over 1 basis point at 2.508 percent after hitting 2.555 percent earlier, which was its highest since December 28, according to Reuters data. Bond yields bounced in a narrow range with the Dow holding above its milestone.
With this week's supply out of the way, investors will receive fresh clues on the economy and whether it shows enough strength for the Fed to consider further rate increases. Fed policy-makers, who will meet next Tuesday and Wednesday, are expected to leave rates unchanged after raising them in December. Investors will focus on the government's first reading on gross domestic product in the final quarter of 2016. Economists polled by Reuters forecast GDP likely slowed to 2.2 percent growth pace in the fourth quarter from 3.5 percent in third quarter. "If we see a stronger number, we could see another backup in yields," R&W Pressprich's Milstein said.
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