Treasurys rally after strong 30-year bond auction

Treasury Department auctions $16 billion of 30-year bonds at a high yield of 3.224%

US 10-YR
US 30-YR

Treasurys accelerated earlier gains on Thursday following strong demand for a sale of 30-year bonds.

The Treasury Department auctioned $16 billion in 30-year bonds at a high yield of 3.224 percent, the lowest since May 2013. The bid-to-cover ratio, an indicator of demand, was 2.60, above a recent average of 2.40.

In the "when-issued" market, bonds were expected to sell at a yield at 3.2480 percent.

Indirect bidders, which include major central banks, were awarded 45.9 percent, while direct bidders took 44 percent of the pile.

Benchmark 10-year Treasurys were up 6/32 in price with a yield of 2.41 down from 2.42 percent before the announcement, while, 30-year bonds surged 22/32 in price, bringing the yield down to 3.21 percent from 3.24 percent earlier.

Eric Thayer | Stringer | Getty Images

Earlier, U.S. yields rose in Asian trading before falling with their German counterparts in reaction to data that showed euro zone growth unexpectedly flatlined in the second quarter and inflation figures that confirmed anemic price growth in the 18-nation block.

Fears about Russia's aid convoy to eastern Ukraine, which Kiev and the West reckon could be a pretext for Russian President Vladimir Putin's invasion into that area, intensified demand for lower-risk U.S. and German government debt, helping to push 10-year Bund yield below 1 percent for the first time ever.

"These events are pushing German and global yields lower," said Andrew Mulligan, head of global strategy at Standard Life Investments in London. "Some of the engines of growth in Europe, especially Germany, are slowing. France and Italy are showing stagnation."

The first two parts of the refunding fared well with solid demand from investors, according to Treasury data. In the "when-issued" market, the yield on the 30-year bond issue that will mature August 2044 and be auctioned at 1 p.m. was quoted at 3.2480 percent, which would be the lowest since May 2013.

While tension in Ukraine and Iraq remained high, there was a glimmer of hope for Israel where a 72-hour ceasefire was extended in a bid to buy time for the Israelis and Palestinians to reach a deal to end a one-month war in Gaza.

These conflicts have worried investors since they might worsen and take a toll on the global economy.

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Yields declined further after the Department of Labor said initial jobless claims rose by a higher-than-expected 311,000 last week, giving investors more incentive to purchase government debt as a safe-haven play. Yet inflation in imported and exported goods remained tame, separate data showed.

In Ukraine, Kiev denounced Russia's dispatch of a humanitarian aid convoy and said the trucks would not be allowed to pass. Reports on Thursday morning said that the aid trucks were currently standing idle at a military base in Voronezh in Russia, close to the Ukrainian border.

Over in the Middle East, Israel and Palestinian factions agreed to extend the truce for five more days on Wednesday in order to reach a lasting agreement to end the fighting in Gaza.

In Iraq, 130 U.S. military advisers arrived in Irbil. Secretary of Defense Chuck Hagel on Tuesday reiterated that the U.S. was not going back into Iraq with a "combat boots-on-the-ground operation."

U.S. retail sales were unexpectedly flat in July, data from the Commerce Department showed on Wednesday, held back by a second straight month of declines in receipts at auto dealers, as well as weak sales of furniture, electronics and appliances. July's reading was the weakest since January.

—By CNBC and Reuters