US Stock Market: Treasury yields ease as investors buy bonds after selloff; strong auction boosts sentiment

US Treasury prices rose on Thursday as investors stepped in to buy bonds following this week's sharp selloff, while gains remained limited amid renewed geopolitical tensions involving the United States and Iran, according to Reuters.

The rally gathered pace after a strong auction of 30-year U.S. government bonds, which attracted the highest level of indirect bids, typically seen as a measure of foreign investor demand, since October 2024, Reuters reported, citing BMO Capital.

The benchmark 10-year Treasury yield fell nearly 3 basis points to 4.537% in afternoon trading after climbing to a seven-week high in the previous session. The yield on the 30-year Treasury bond declined 1.1 basis points to 5.053%, retreating from its highest level in seven weeks reached on Wednesday.


Shorter-dated Treasuries also gained, with the two-year yield, which is closely tied to expectations for Federal Reserve policy, falling 3.7 basis points to 4.164% after touching a two-week high a day earlier.

According to Reuters, market participants viewed yields above 4.5% on the 10-year note and 5% on the 30-year bond as attractive levels for investors to re-enter the market, particularly as uncertainty surrounding the Middle East conflict and the Federal Reserve's policy outlook created a more balanced risk environment for bonds.

Geopolitical developments remained a key focus after Iranian armed forces launched attacks on U.S. military infrastructure in Gulf states on Thursday. The attacks followed recent U.S. strikes on Iran's southern coastal and eastern provinces, adding strain to a fragile three-week-old ceasefire agreement, Reuters reported.

Despite the renewed tensions, U.S. crude oil futures fell 1.7% to $72.33 a barrel, easing concerns over energy-driven inflation. Some investors expect Treasury yields to decline further if oil prices continue to soften.

Meanwhile, fresh U.S. economic data reinforced expectations that the Federal Reserve is likely to keep interest rates unchanged over the coming meetings.

Initial jobless claims fell by 2,000 to a seasonally adjusted 215,000 in the week ended July 4, below the 218,000 forecast in a Reuters poll of economists. The figures suggested the labour market remains relatively stable despite a slowdown in job growth during June.

Separate housing data also pointed to moderating economic activity. Existing home sales fell 2.4% last month to a seasonally adjusted annual rate of 4.09 million units, missing economists' expectations in a Reuters poll for an increase to 4.20 million units.

Following the data, interest rate futures reflected a 26% probability of a Federal Reserve rate hike later this month, down from roughly 31% on Wednesday evening, according to CME Group's FedWatch tool cited by Reuters.

Investors increasingly expect the Fed to remain on hold in the near term, with the possibility of rate cuts later this year if inflation continues to moderate and economic growth slows.

Demand for longer-dated government debt remained robust as the U.S. Treasury sold $22 billion of 30-year bonds. The securities were awarded at a yield of 5.058%, below prevailing market expectations, indicating investors were willing to accept lower yields. The auction followed similarly strong demand at recent sales of three-year and 10-year Treasury notes.

Although 30-year Treasury yields remain around 5 basis points higher than at the previous auction in June, the latest sale underscored continued investor appetite for long-term U.S. government debt despite recent market volatility, according to Reuters.