NEW YORK (CNN/Money) - Treasury prices climbed higher from earlier losses on Thursday as investors reconsidered the implications of a surprise rise in China's interest rates.
The benchmark 10-year note rose 4/32 of a point to 101-14/32 to yield 4.07 percent, down from 4.10 late Wednesday. The 30-year bond gained 7/32 of a point to 108 to yield 4.83 percent, down from 4.85 late Wednesday.
Bond prices and yields move in opposite directions
The two-year note edged up 1/32 of a point to 99-26/32, yielding 2.59 percent, while the five-year note was up 3/32 of a point at 99-7/32 to yield 3.33 percent.
In the currency market, the euro bought $1.2743, up from $1.2702 late Wednesday. The dollar bought ¥106.28, down from ¥106.55 late Wednesday, marking the second time this week the dollar has touched a six-month low against the yen.
Some investors had sold bonds on speculation the interest rate hike would slow Chinese domestic demand and take some steam out of oil and other commodity prices. If so, that would be a relief for the U.S. economy and perhaps remove an impediment to further rate increases from the Federal Reserve.
Analysts found the reasoning a bit of a stretch, noting that if the Chinese economy were to slow it could ultimately become a drag on global growth, which would tend to retard inflation and aid fixed-income debt.
Others, argued that the Chinese economy was relatively unresponsive to interest rates increases, so it was not clear the hike would have much effect at all.
"People are reading a lot into this move that really isn't justified," Sadakichi Robbins, head of global fixed-income trading at Bank Julias Baer, told Reuters.
"We reckon the pullback in oil and bonds has more to do with technical factors -- oil failing at a double top and bonds failing to clear 3.90 percent," he added. "It's not clear these moves are the start of a trend, or just temporary setbacks."
Oil prices twice failed to clear $55.67 this week, leading to a swift sell-off to around $51.85 on Thursday. Fixed-income investors have tended to look at sky-high energy costs as a future drag on consumer spending and growth rather than a herald of inflation.
The 10-year yield initially climbed as high as 4.15 percent overnight, before the market reconsidered the impact of the China news.
Traders were uncertain what China's rate hike meant for the prospect of foreign central bank demand for Treasuries and the U.S. currency.
Some wondered if the rate move was a step toward a more flexible yuan regime. If so, it could mean the Chinese central bank would have less need to buy dollars and so less cash to invest in Treasuries.