Yields drop on weak stocks, quarter-end demand, Treasury to sell 7-year notes

NEW YORK: Benchmark US Treasury yields fell on Thursday as stocks opened weaker and quarter-end rebalancing boosted demand for the bonds, even before the Treasury will sell $62 billion in seven-year notes.

Wall Street's main indexes were dragged down by technology and bank stocks.

Demand for bonds for quarter-end rebalancing is also viewed as supporting bond prices.

"We're focused on the flows associated with rotation out of equities and into bonds as people close the books on the first quarter of 2021," said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York.

Benchmark 10-year yields fell 2 basis points to 1.596%.

The yields are down from a one-year high of 1.754% reached last Thursday, a day after the Federal Reserve pledged to keep rates near zero for years to come, boosting bets on faster US economic recovery and higher inflation pressures.

Treasury yields also fell overnight on safety buying after North Korea launched two suspected ballistic missiles into the sea near Japan.

Demand for the Treasury's seven-year note auction is next in focus after a seven-year note auction last month saw very weak interest and sparked a selloff across all Treasury maturities.

It was an "important inflection point in February," Lyngen said. "I think that the market will be paying attention to the takedown this afternoon."

Seven-year note yields were last 1.250%, down 2 basis points on the day.

The Treasury saw solid demand for a $61 billion sale of five-year notes on Wednesday and a $60 billion auction of two-year notes on Tuesday.

Data on Thursday showed that fewer than expected Americans filed new claims for unemployment benefits last week as economic activity rebounds after weather-related disruptions in February.

Treasury bill yields remained at depressed levels as money market investors struggle with a surge of cash and a drop in supply.

One-month yields were last at 0.013%, after getting as low as 0.005% last Thursday. The cost of borrowing in the overnight repo market was at 0.05% after trading in negative territory last week.