U.S. Treasurys prices gained on Thursday in choppy trading after the European Central Bank cut interest rates to record lows and announced new measures meant to help stimulate the region's economy.
The ECB said it was setting a negative deposit rate, effectively charging banks to deposit overnight. The move, without precedent in ECB history, came in response to a slowdown in inflation, to far below the central bank's target, amid weak euro zone lending.
The ECB said it will offer banks a targeted long-term refinancing operation (LTRO) to stimulate lending. The bank also said it was preparing to purchase asset-backed securities and will discontinue sterilizing previous bond purchases.
Treasurys yields had fallen before the ECB announcement on strong overnight demand for U.S. bonds from Japanese investors, said traders. They then weakened temporarily after the announcement, in line with German government bonds, before then paring losses to trade little changed.
"A lot of the details from the ECB's announcement still have to be hashed out," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York. "There's a negative deposit rate that everyone is focused on, but also ABS purchases. It's not clear what the details are."
Benchmark 10-year notes were last up 8/32 in price to yield 2.58 percent.
Bonds gained some support from investors that saw the ECB's actions as further evidence that central banks will continue to keep monetary conditions loose.
"It delivered the notion global central banks are committed to aggressive policies to avert deflation in the foreseeable future," said Kathy Jones, a fixed income strategist at Charles Schwab in New York.
Treasurys have defied expectations this year that they would weaken as economic growth has disappointed and central banks globally have been more dovish than many expected.
The next major focus for the market will be Friday's payrolls report for May. It is expected to show that employers added 218,000 people to payrolls, according to the median estimate of 105 economists polled by Reuters.
Many investors have closed out short positions in the past week to be neutral, which may mitigate volatility on Friday unless the number is a big surprise.
The Federal Reserve also reduced some of its reliance on the jobs data when it removed at its March meeting a threshold to increase interest rates when the unemployment rate hits 6.5 percent.
"By removing the hard employment target they have essentially made it one more indicator. Its very hard for the market to know if any print is going to change their opinion," said Kohli.
The Fed bought $2.51 billion in notes due from 2022 to 2024 on Thursday as part of its ongoing purchase program.