U.S. Treasury prices rose Thursday as investors shunned riskier assets for the safety of government bonds on signs that turmoil in U.S. credit markets has spread abroad.
The seizing up of credit availability overnight in Europe prompted Europe's central bank to provide an emergency cash injection and led to U.S. stocks falling and the rally in the safe-haven U.S. Treasury market.
But long-dated bond prices erased their early gains due to weak demand at a $9 billion auction of 30-year bonds.
"This is a day-to-day if not an hour-to-hour phenomenon," said William Sullivan, chief economist at JVB Financial Group in Boca Raton, Florida. "The Treasury market is being held hostage by ongoing changes in risk perception and probably the most salient indicator of risk perception is the stock market."
At the Treasury's auction of new long bonds, the bid-to-cover ratio, an indication of demand, was 1.57, well below that in the previous auction of 30-year notes in February. Indirect bidders, which includes foreign central banks, took about 12 percent of the auction, down from about 42 percent in the previous auction.
The 30-year bond traded flat in price for a yield of 5.05 percent, versus 5.01 percent just before the auction and with 5.05 percent late Wednesday.
"The auction was garbage, but expectations were pretty low coming into it," said Beth Malloy, bond market analyst at Briefing.com in Chicago.
"As far as the market's reaction, we should be able to recover fairly well, especially since the fundamentals of the day have not changed. What gave us our initial bid is still out there," she said.
The new issue of the benchmark 10-year note, which was sold in a Treasury auction on Wednesday, traded down 5 basis points in yield, at 4.81 percent.