U.S. government bonds held lower on Thursday after the U.S. government's auction of 30-year Treasury bonds saw strong demand.
The Treasury Department auctioned $13 billion in 30-year bonds at a high yield of 2.980 percent. The bid-to-cover ratio, an indicator of demand, was 2.54—above a recent average of 2.32. The offering follows Wednesday's $21 billion auction of 10-year notes, which went at a high yield of 2.235 percent.
The yield on the benchmark 10-year Treasury note was up 3 basis points at 2.227 percent, after closing at 2.201 in the previous session. The yield on the 30-year Treasury bond was at 2.981 percent, after rising as high as 2.999. The yield on a bond rises when its price falls.
Long-dated maturities fell, while shorter-dated issues were near the flat line as investors waited to see whether market conditions would stabilize and create an environment where the Federal Reserve would be more comfortable hiking rates for the first time in more than nine years.
Overall, Treasury yields, which influence the interest rates that borrowers pay on mortgages and other loans, have been "remarkably stable" given the Fed could raise rates against the backdrop of ongoing turmoil in global markets, said Kathy Jones, chief fixed income strategist at Schwab.
But other parts of the fixed income market, particularly the more risky areas, are starting to show the stress of the prospect of tighter monetary policy, she said. "When you get tightening monetary policy you start to see the riskier sectors of the fixed income market start to sell off and we've certainly seen that," Jones said.
There has been "a lot of deterioration in high yield and in emerging market bonds and I think that continues to reflect the reality that the Fed is moving in the opposite direction than it has been in the last several years."
Wall Street is plainly split on whether the Fed will hike next week, with some saying the markets are already displaying enough volatility to sideline the central bank for several months or more.
Thursday's data sums up the Federal Reserve's dilemma: it's torn between and the improving employment market and stubbornly low inflation. It's a tale of two economies, with jobless claims continuing to hold at very low levels, but import prices are down double digits, Jones said.
U.S. weekly jobless claims fell by 6,000 to a seasonally adjusted 275,000, while U.S. import prices dropped to their lowest levels since January. Wholesale inventories for July also slipped 0.1 percent, while economists were expecting a 0.3 percent gain.