Yields on the benchmark 10-year U.S. Treasury as well as 30-year bonds were lower on Wednesday morning following an announcement that the Treasury Department would double the size of liquidity support buyback operations for longer-dated bonds.
The easing pressure on U.S. borrowing costs came as longer-dated euro zone bonds also retreated from multi-year highs hit during a global selloff on fears for governments' deteriorating fiscal situations, supply shocks and inflation fears.
At the same time, progress toward ending the U.S.-Iran conflict remained stalled on Wednesday and crude prices continued to nudge upwards. Markets will later scrutinize the U.S. central bank's expected publication of minutes from its most recent policy meeting and an auction of 20-year bonds.
Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said markets were welcoming the signal that Washington will act if necessary, but he said the Treasury could choose to do more.
"I don't want to call it a Band-Aid measure but it is the first of many possible actions that the Treasury could take to support the long end," he said. "A more permanent measure would be lowering long-end auction sizes."
In the Fed minutes due to be released Wednesday, investors will be looking for signs that some members of the policy-setting Federal Open Market Committee are open to a rate hike despite Fed Chairman Kevin Warsh's decision not to offer forward guidance, said Goldberg.
"Any sort of guidance would be very well appreciated," he said.
The yield on the benchmark U.S. 10-year Treasury note was last down 4.9 basis points to 4.655%. The yield on the 30-year bond fell 8 basis points to 5.205%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , seen as an indicator of economic expectations, was at a positive 47.4 basis points.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 0.6 basis points to 4.181%.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.287% after closing at 2.288% on August 18.
The 10-year TIPS breakeven rate was last at 2.307%, indicating the market sees inflation averaging about 2.3% a year for the next decade.
