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Yields dip on dovish central bank outlook, overseas demand

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US 3-MO
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U.S. Treasurys yields dipped on Friday, but remained off recent multi-week lows, as traders reverted to buying U.S. government bonds on accommodative central bank policies in the United States and Europe.

Traders who had taken some profits on Thursday after Wednesday's dramatic price gains, which came after the Federal Reserve suggested it was pursuing a less aggressive timeline for raising interest rates, bought back Treasurys.

"People are adding to positions," said Ian Lyngen, senior government bond strategist at CRT in Stamford, Connecticut. Yields move inversely to prices.

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Traders were comfortable buying Treasurys on the view that the Fed would likely keep rates low until at least September, analysts said. Yields on 10- and 30-year Treasurys were still off nearly six-week lows hit early on Thursday.

German 10-year Bund yields hit a fresh record low of 0.168 percent in the wake of the European Central Bank's recent bond-buying program, drawing overseas investors into higher-yielding U.S. government bonds and contributing to the decline in U.S. yields.

"We're getting a nice spill-over from Europe," said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco.

The outlook for low inflation continued to support 30-year Treasurys prices. Longer-dated U.S. bonds benefit from a lack of inflation since inflation erodes the value of interest rate payouts.

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An extended slide in oil prices on Friday reinforced the outlook for low inflation after the Fed downgraded its inflation projection for 2015 on Wednesday. Brent crude oil fell below $54 a barrel and was on track for its third straight weekly loss, hurt by worries of rising supplies from OPEC and the United States.

Benchmark 10-year Treasury notes yields were last at 1.93 percent, from a yield of 1.98 percent late Thursday. The yield hit 1.9 percent on Thursday.

U.S. 30-year bond yields were at 2.50 percent, from a yield of 2.54 percent late Thursday. The yield hit a low of 2.5 percent on Thursday.

U.S. three-year note yields, which are among the shorter-dated maturities most vulnerable to Fed rate hikes, were last at 0.95 percent, from a yield of 1 percent late Thursday. The yield hit 0.89 percent on Thursday, its lowest since Feb. 6.