By Sunny Oh

European bond yields fall as traders reassess ECB policy path

Treasury yields rose Thursday as U.S. benchmark oil prices traded above $50 a barrel, highlighting shifting inflation expectations, and a slight rekindling of appetite for assets perceived as risky.

Yields for 10-year Treasury notes rose 3.2 basis points at 2.418%, while the 30-year Treasury bond gained 3.5 basis points to 3.027%. Those for the 2-year Treasury note ticked up 0.8 of a basis point to 1.286%.

Yields and bond prices move in opposite directions, and a basis point is one hundredth of a percentage point.

Analysts tied gains in oil (http://www.marketwatch.com/story/oil-prices-make-steady-gains-after-rallying-to-a-three-week-high-2017-03-30) to a bigger-than-expected drawdown in U.S. petroleum-product stockpiles and a pickup in domestic refinery activity. West Texas Intermediate oil trading on the New York Mercantile Exchange settled at $50.35 a barrel, marking its highest finish since early March.

A rise in crude-oil futures can lift inflation expectations, and rising inflation tends to spark selling in bonds, pushing yields higher, because elevated inflation can have a corrosive effect on a bond's fixed payments.

"There's been a little bit of bounceback in yields. One of the surprising things yesterday was a fall in yield in the midst of strength in oil. That relationship has been just the opposite. And I think that was one of the reasons driving the increase," said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management.

Higher oil prices also helped to deliver a lift to energy shares, and the broader equity market, dulling demand for havens. U.S. stocks finished solidly in positive territory and the Nasdaq Composite Index registered a record close (http://www.marketwatch.com/story/us-stock-futures-sag-with-nasdaq-set-to-lose-its-grip-on-string-of-gains-2017-03-30).

On the economic front, data released Thursday supported the consensus view of a U.S. economy that is on a healthy footing. As measured by gross domestic product (http://www.marketwatch.com/story/fourth-quarter-gdp-raised-to-21-corporate-profits-rise-again-2017-03-30), the economy expanded at a 2.1% annualized pace in the fourth quarter, while a weekly employment report, showed that jobless claims fell by 3,000 to 258,000, near the lowest level in decades (http://www.marketwatch.com/story/jobless-claims-dip-3000-to-258000-in-late-march-2017-03-30).

Meanwhile, Cleveland Fed President Loretta Mester in a Thursday speech reinforced the belief that the U.S. economy is solid and said she wasn't worried about a slowdown in first-quarter GDP, which tends to be seasonally weak (http://www.marketwatch.com/story/feds-mester-not-worried-about-expected-slowdown-in-first-quarter-gdp-2017-03-30). Mester, who was speaking at the DePaul University's Center for Financial Services in Chicago, isn't a voting member of Fed's interest-rate setting committee this year.

Elsewhere, European bond yields fell after Reuters (http://uk.reuters.com/article/us-ecb-policy-idUKKBN1701HI), citing unnamed officials, reported that policy makers at the European Central Bank felt the selloff in European government paper that followed their March 9 meeting. The report indicated that officials believe traders misinterpreted ECB President Mario Draghi's comments at the central-bank meeting as hawkish.

The yield on the benchmark 10-year German bond , known as the bund, was off 1.3 basis point, at 0.33%.

See:Euro bulls just got a wake-up call from the ECB (http://www.marketwatch.com/story/euro-bulls-just-got-a-wake-up-call-from-the-ecb-2017-03-30)

"In the last couple of months, there has been some loose talk that the ECB would withdraw its commitment to the timetable. Today's comments helped put a stop to that speculation," said Anthony Karydakis, chief market economist for Miller Tabak Asset Management.

(END) Dow Jones Newswires

March 30, 2017 17:32 ET (21:32 GMT)

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