By Sam Goldfarb 

Treasurys strengthened Thursday, pushing the yield on the 10-year note back below 2.3% as a drop in oil prices helped buoy demand from investors.

The yield on the benchmark 10-year Treasury note settled at 2.298%, compared with 2.312% Wednesday. Yields fall when bond prices rise.

After a quiet overnight session, bonds staged a modest rally in the morning, responding in part to the decline in oil prices, which fell to a one-month low amid increasing concerns of an oversupply in petroleum products, analysts and traders said.

Lower oil prices could help keep a lid on inflation, which is a main threat to longer-term government bonds as it erodes their fixed returns over time.

Bonds also gained support from continuing skepticism among investors over the prospects for fiscal stimulus, as well as month-end demand as some investors adjusted their portfolios to match changing indexes, analysts said.

Though the move in yields was modest, appetite for Treasurys was evident in an auction of seven-year notes, which were sold at an unexpectedly low yield amid signs of intense interest from foreign buyers.

Earlier in the day, the European Central Bank, at the conclusion of its latest policy meeting, said its main interest rate charged on regular loans, would remain at zero while the rate on overnight deposits would stay at a minus 0.4%. It also maintained its bond-buying program at EUR60 billion a month.

The ECB's asset purchases have been one factor that have depressed bond yields over the past two years, making bonds more scarce and sending European investors into the U.S. market in search of higher-yielding debt. The ECB is expected to preserve its bond-buying program through the end of the year before gradually tapering its purchases next year.

Treasury yields had also fallen Wednesday after administration officials formally announced their plan to cut taxes for individuals and businesses. Though the promise of tax cuts helped buoy yields after last November's election, many investors and analysts found the administration's plan unconvincing, given its lack of technical details or clear path to being passed by Congress.

Expansionary fiscal policies, such as tax cuts, could potentially boost economic growth, leading to higher inflation and interest rates that would diminish the value of outstanding government debt.

The bond market registered a "pretty muted response to the Trump administration's outline tax proposal," which "still needs a lot of details filled in," said Timothy High, senior U.S. interest-rate strategist at BNP Paribas.

After a period of volatility, the yield on the 10-year Treasury note now stands at the bottom end of a range of 2.3% to 2.6%, which has held for much of the year. The yield broke out of that range last week, falling to a month low of 2.177%. But it rebounded this week, partly due to the results of last Sunday's first-round presidential vote in France, which established the centrist, pro-European Union candidate Emmanuel Macron as the clear favorite heading into the final round of voting on May 7.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

 

(END) Dow Jones Newswires

April 27, 2017 16:21 ET (20:21 GMT)

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