NEW YORK, Jan 9 (Reuters) - Treasury yields fell on Thursday afternoon after strong demand at a $16 billion auction of 30-year bonds drove prices higher.
Primary dealers, who are obliged to absorb any supply not bought by bidders, took 19.09% of the offering, below the 25.10% average for the prior 12 months of auctions. There was notable demand from indirect bidders, a proxy for foreign interest, who took 63.03% versus an average 59.46%.
Prices across maturities continued to rise after the auction.
"We started rallying a little bit before the 30-year auction. But the 30-year auction, which was quite strong, really pulled the markets higher today," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.
"The primary dealer take was pretty low, which means customers were buying."
The strong demand was likely attributable to the low prices of bonds prior to the sale. Treasury prices had fallen since early Wednesday following a de-escalation in tension between the United States and Iran. The drop continued on Thursday and was accelerated by a strong weekly jobless report.
"There wasn't an obvious catalyst here. We were set up for, at least year-to-date, a decent increase in yields, though not a massive one. Valuations are ok, not spectacular but ok, and that may have helped spur demand," said LeBas.
The U.S. killing of an Iranian general last week and Tehran's retaliatory missile strikes had sparked concern the Middle East was primed for a wider war. That initially drove investors into safe-haven assets like Treasury debt. That money was then pulled out after U.S President Donald Trump refrained from ordering more military action on Wednesday and Iran's foreign minister said missile strikes "concluded" Tehran's response.
The 10-year Treasury yield has swung nearly 20 basis points this week on the headlines, dropping to a month low of 1.705% in overnight trade between Tuesday and Wednesday. It was last trading down 1.4 basis points at 1.860%.
The 30-year bond yield was down 2.3 basis points at 2.337%. The short end of the yield curve was less affected, with the two-year yield last down 0.7 basis point at 1.576%.
An auction of $24 billion of new 10-year notes on Wednesday was met with soft demand; the auction occurred just an hour after a Trump press conference on Iran and the newly returned risk appetite kept investors away from government debt.
The federal government will publish its closely watched report on monthly nonfarm payrolls for December on Friday.
(Reporting by Kate Duguid; editing by Nick Macfie)