NEW YORK: US Treasury yields fell to one-week lows on Thursday, sliding for a second straight session as Wall Street shares weakened a day after posting steep losses on worries about prospects for rising interest rates.
A weaker-than-expected rise in US inflation for September also added to Treasuries' bullish tone and may have partly tempered expectations of more aggressive Federal Reserve interest rate hikes.
Investors kept a close eye on US stocks after the previous day's fall. At midday, Wall Street shares were in the red in choppy trading.
"Stocks are a trigger for the bond rally, but it's not exactly on a one-for one basis," said Jim Vogel, senior rates strategist at FTN Financial in Memphis, Tennessee.
"I think it's less about flight to quality than it is a temporary reversal of the strong bias toward steepening and a strong bias that rates are going to continue on their trajectory of last week," he added.
The yield curve steepened last week on the US 5-year note and US 30-year metric and on Monday, the spread on those two maturities rose to 36.2 basis points, the widest since late May.
US yields accelerated their ascent last week on strong economic data and the Fed's hawkish outlook for interest rates.
While Thursday's softer-than-forecast US consumer prices data weighed on yields, analysts said this should not deter the Fed from hiking.
The Consumer Price Index rose 0.1 percent last month after rising 0.2 percent in August. Excluding the volatile food and energy components, the CPI edged up 0.1 percent for the second straight month. The so-called core index had increased 0.2 percent in May, June and July.
George Goncalves, managing director and head of fixed income strategy at Nomura in New York, said the tame inflation data could slow the momentum in yields, but the Fed will continue lifting rates.
"It does make people think that it (inflation) is not imminent of a danger and therefore the Fed will maintain its gradual pace of every quarter," he said. "It takes away some of the concern that inflation is accelerating, but not enough to turn us back into rally mode."
In midday trading, US 10-year note yields were at 3.164 percent, down from 3.225 percent late on Wednesday. Earlier in the global session, 10-year yields hit a one-week low of 3.142 percent.
US 30-year bond yields fell to 3.341 percent, versus Wednesday's 3.401 percent. The yield earlier dropped to 3.329 percent, the lowest since Oct. 3.
On the short end of the curve, US two-year yields were at 2.856 percent, down from 2.881 percent on Wednesday.
The market is looking to the Treasury's auction of $15 billion in re-opened US 30-year bonds later in the session. The US 3- and 10-year sales auctions held on Wednesday were lackluster, analysts said.