UKX FTSE 100 Index

By Sara Sjolin, MarketWatch

U.S. Treasury yields pared their gains Thursday, giving back most of Wednesday's advance as a Chinese regulator blasted a report that Beijing will scale back its U.S. bond purchases as "fake news."

What are Treasurys doing?

The yield for the 10-year benchmark note slipped 2.1 basis points to 2.5353%, falling for the first time in six sessions. On Wednesday, the yield was trading around the highest level since March last year.

The yield on 30-year bonds fell 2.3 basis points to 2.8787%, while the rate on the two-year paper dropped 1.2 basis point to 1.9646%.

Yields fall as prices rise.

What is driving the market?

Bond prices started to rise and yields slipped after China's foreign-exchange regulator on Thursday pushed back on a Bloomberg report (http://www.marketwatch.com/story/china-regulator-says-report-country-wants-to-pare-us-bonds-may-be-fake-news-2018-01-11) that government officials were recommending China should to pare back or even halt purchases of U.S. Treasurys.

A spokesperson for the State Administration of Foreign Exchange (SAFE) said in a statement published on its Chinese website, that the "news may quote the wrong source of information, or it may be fake news."

On Wednesday, Bloomberg, citing unidentified people familiar with the matter, said China found that U.S. bonds were becoming less attractive and that trade tensions with the U.S. could provide a reason to stop buying American government paper. The report sparked a selloff in U.S. bonds that sent 10-year Treasury yields (http://www.marketwatch.com/story/10-year-yield-jumps-close-to-26-after-report-china-may-end-us-bond-buying-2018-01-10) higher, close to 2.6% in Wednesday's action.

Yields, however, had already started to come off intraday highs on Wednesday afternoon (http://www.marketwatch.com/story/10-year-yield-jumps-close-to-26-after-report-china-may-end-us-bond-buying-2018-01-10) after a strong 10-year auction helped to reaffirm appetite for government paper.

What are strategists saying?

"There's been a lot of discussion in the last few days about the likelihood of the start of a bond bear market where prices slide back sharply and push yields higher," said Michael Hewson, chief Market analyst at CMC Markets UK, in a note.

"Looking past the headlines it's always a good idea if you are a trader to trade what you see and for the moment we remain in a downward trend for yields though we could well start to push higher if we see evidence of inflation making a comeback," he added.

U.S. inflation data for December are due on Friday morning, with traders closely watching for hints that consumer prices are picking up at a faster pace that could speed up the Federal Reserve's expected rate hikes.

(END) Dow Jones Newswires

January 11, 2018 06:31 ET (11:31 GMT)

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