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NEW YORK — Another strong Treasury auction is driving investors back into government debt.
Bond prices rose Thursday, sending yields lower, after the Treasury Department sold $27 billion in seven-year notes to solid demand. It was the last auction of the week, and a big relief to investors nervous about foreign buyers shying away from Treasurys due to the weakening dollar and inflation worries.
Treasury yields aren't just important to bond investors — they also affect interest rates on mortgages and other consumer loans. Mortgage rates spiked to seven-month highs in early June as inflation fears overtook the market.
This week's auctions, however, have all been robust. Thursday's auction of seven-year notes drew nearly three times as many bids as notes sold. Indirect bidding, which includes foreign buying, was high at 67 percent.
"All I can think of is that the central banks are back in the market in a fairly big way," said Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC.
Earlier Thursday, a Japanese finance minister reiterated his support for the U.S. dollar, according to media reports, following comments from other countries' finance officials supporting currency stability.
"It looks like they're putting their money where their mouth is," di Galoma said.
After rising initially on an unexpected increase in last week's jobless claims, Treasurys rose even higher by afternoon trading Thursday. The 10-year Treasury note's price was up 1 5/32 at 96 17/32, and its yield was down at 3.54 percent from 3.69 percent late Wednesday.
The 30-year bond's yield fell to 4.33 percent from 4.43 percent. Its price rose 1 20/32 to 98 21/32.
The two-year note's yield fell to 1.13 percent from 1.22 percent, and its price rose about 5/32 to 99 31/32.
The yield on the three-month Treasury bill slipped to 0.16 percent from 0.18 percent. Its discount rate stood at 0.17 percent.
On Wednesday, Treasurys gave up ground following three straight days of gains after a Federal Reserve statement disappointed some investors.
The Fed decided to keep interest rates within a range of zero to 0.25 percent, and reiterated that it would purchase up to $300 billion in Treasurys before the year ends. The central bank has been buying up Treasurys this year to offset the massive amounts of debt the government is issuing to fund its stimulus programs. Some traders had been hoping policy makers would expand the program.
The Fed also seemed less concerned than before about deflation, or too-low inflation; it said it expects inflation to remain subdued for some time. Inflation is bad for bonds because it eventually devalues their fixed returns.
