By Daniel Kruger 

U.S. government bond prices rose Tuesday as oil prices continued to decline, increasing appetite for the relative safety of sovereign debt.

The yield on the benchmark 10-year Treasury note fell to 3.145% from 3.189% Friday. After reaching a fresh seven-year high Thursday, the yield has had its biggest two-day decline in three months.

Yields, which decline when bond prices rise, fell Tuesday as U.S. oil prices declined for a 12th consecutive day, dropping by the largest dollar amount in more than three years to less than $56 a barrel. Oil has declined by almost 15% this month, and is 27% off its 2018 peak.

Oil's fall has led investors to scale back their near-term expectations for inflation. Stable consumer prices support the purchasing power of bonds' fixed interest payments and principal payments.

"It certainly means we're going to see headline inflation heading toward zero over the next couple of months," said Donald Ellenberger, head of multiasset strategies at Federated Investors Inc.

The broader economic effect of lower oil prices is difficult for investors to assess because the commodity has an important role that affects consumption, disposable income, employment and inflation, Mr. Ellenberger said.

Because the Federal Reserve uses less volatile measures of consumer prices to gauge the effect of inflation, it is unlikely that recent declines in oil will affect monetary policy in the near term. Policy makers are widely seen as planning to raise interest rates at their next meeting in December.

Yields started the day lower as U.S. investors returned from the Veterans Day holiday to confront a stock market that has struggled to rebound following a weak performance in October.

Warnings from suppliers about demand for Apple's iPhones, along with uncertainty about the prospects for General Electric, bolstered demand for bonds by increasing concerns about demand in the global economy. Goldman Sachs shares, meanwhile, suffered their worst loss since November 2011 on Monday, pushing some investors toward safer assets.

"Some of the bellwether stocks that people end up watching -- Apple, Goldman and GE -- certainly have put undue pressure on stocks," said Thomas di Galoma, a managing director and head of Treasury trading at Seaport Global Holdings. "Conversely, what you're getting is a flight to quality in bonds because of it."

Geopolitical concerns in Europe have also boosted demand for bonds, analysts said. Those concerns include the slow pace of Brexit talks between the U.K. and the European Union, along with the sparring between Italian officials and the EU over Italy's desire to run larger budget deficits than allowed by the group.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

(END) Dow Jones Newswires

November 13, 2018 17:09 ET (22:09 GMT)

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