U.S. Government Bond Yields Hit Lowest Closing Level Since April 24 -- Update

U.S. government bond yields fell to a nearly 11-week low Thursday after another well-received bond auction helped ease investors' concerns about the growing supply of Treasurys.

Yields, which fall when bond prices rise, held steady overnight. But they dropped near the start of the U.S. trading session when U.S. stock indexes started to fall. They then added to declines in the afternoon following a $19 billion auction of 30-year Treasury bonds.

The yield on the benchmark 10-year U.S. Treasury note settled at 0.605%, its lowest closing level since April 24, compared with 0.630% just before the auction and 0.652% at Wednesday's close.

Thursday's auction was notable because it was the second straight day that investors showed strong demand for new longer-term Treasury debt following a $29 billion sale of 10-year notes on Wednesday.

Though auctions sometimes come and go with little impact on the market, they can also sometimes be turning points, revealing the depth of demand for Treasurys in a way that isn't possible during normal trading.

There was some question before Wednesday's auction about the level of interest for new longer-term bonds, given increased auction sizes and a run of better-than-expected economic data, which have boosted appetite for riskier assets.

By Wednesday afternoon, anxieties were already reduced after the Treasury Department sold 10-year notes at a record low yield of 0.653%. Traders put in bids for 2.62 times the amount of bonds that were sold, a big increase from the 2.26 ratio for last month's 10-year note auction, according to Jefferies LLC.

Thursday's auction presented another test for the market. But the hurdle was cleared just as easily, as the new 30- year bonds were sold with a lower-than-expected 1.330% yield.

"Judging by the auction results and the immediate post-auction trading, it seems that investors used this auction as a liquidity opportunity" to bet on a shrinking gap between short-term and long-term Treasury yields, analysts at Jefferies wrote in a research note.

Despite recent stock-market gains, analysts say that investors continue to buy Treasurys partly out of fear that it could take a long time for the U.S. to recover from the fallout from the coronavirus pandemic. At the same time, investors are confident that the Federal Reserve will continue to support the economy -- and fixed-income assets -- by buying Treasurys and keeping short-term interest rates near zero.

The yield on the current benchmark 30-year bond settled at 1.308%, its lowest close since May 14, compared with 1.391% Wednesday.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

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  07-09-20 1702ET
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