US Treasury debt prices reversed early losses to cruise higher on Thursday after investors embraced a sale of new 10-year notes with open arms.
Sliding equity markets and soaring oil prices were also lending support to bonds, since both suggested a tough road ahead for corporate investment and economic growth.
Retail sales figures released earlier painted a mixed picture, with results for July falling short of forecasts but upward revisions to the previous month indicating things had not been as bad as analysts had thought.
After all was said and done, the current 10-year note was up 6/32 in price, lowering its yield to 4.25 percent from 4.28 percent on Wednesday.
The sale of $14 billion in new 10-year Treasury notes went at a lower-than-expected yield of 4.27 percent. It drew bids for 2.90 times the amount on offer, above the already lofty 2.78 level achieved at the May refunding.
Indirect bidders, including customers of primary dealers and foreign central banks, picked up a hefty $7.59 billion or 54 percent of the whole issue, easily beating May's 43 percent. Primary dealers got $6.23 billion of the issue for themselves.
However, Treasuries were constrained by an optimistic Federal Reserve that seemed bent on raising interest rates gradually for the rest of the year, barring a major downturn.
Such conviction from the central bank could bring the benchmark federal funds rate to 2.25 percent in time for Christmas and make it very hard for the two-year yield to stay as low as its current 2.49 percent.
At the other end of the yield curve, the 30-year bond climbed 5/32, sending the yield down to 5.05 percent from 5.06 percent.
When raising interest rates earlier this week, the Fed blamed much of the recent economic weakness on high energy costs.
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