NEW YORK: US Treasury yields fell to one-week lows on Thursday, sliding for a second straight session, as Wall Street shares dropped a day after posting steep losses on worries about prospects for rising interest rates.
A weaker-than-expected rise in U.S. 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 U.S. stocks after the previous day's fall. By late afternoon, Wall Street shares were down in choppy trading .
"Bonds are looking closely at what's going on in stocks and therefore all news is bad news," said Stan Shipley, market strategist, at Evercore ISI in New York.
"Investors are saying that if stocks are this weak, there must be a risk out there that I don't see. Bonds and stocks used to trade opposite each other, now they're trading with each other," he added.
Bond strategists though said the stocks fall should not stop the Fed from hiking.
Thursday's softer-than-forecast U.S. consumer prices data weighed on yields as well, but analysts said this should also not deter the Fed from its rate path.
The U.S. 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, after gaining 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."
The U.S. 30-year auction, meanwhile, saw solid demand, with the bond picking up a yield of 3.344 percent, the highest at an auction for this maturity since July 2014. The ratio of bids to the amount of supply offered was 2.42, the strongest since January, compared with 2.34 at the previous 30-year sale in September.
In late afternoon trading, U.S. 10-year note yields were at 3.142 percent, down from 3.225 percent late on Wednesday. Earlier in the global session, 10-year yields hit a one-week low of 3.124 percent.
U.S. 30-year bond yields fell to 3.316 percent, versus Wednesday's 3.401 percent. The yield earlier dropped to 3.229 percent, the lowest since Oct. 3.
On the short end of the curve, U.S. two-year yields were at 2.852 percent, down from 2.881 percent on Wednesday.