* Oil prices fall as supply concerns ease
* Fed Wednesday raised rates for the first time since 2023
* Bank of England holds UK rates steady
NEW YORK, Sept 17 (Reuters) – U.S. Treasury yields fell on Thursday, with the benchmark 10-year note yield poised for its biggest daily drop in more than three weeks, as oil prices eased and investors took profits after a recent run higher.
Yields mostly rose on Wednesday after the U.S. central bank raised rates for the first time since 2023 in a widely expected move to try to control persistently higher inflation and as Fed Chairman Kevin Warsh delivered mostly hawkish comments.
Overseas, the Bank of England on Thursday held UK rates steady but sounded the alarm on inflation.
Spikes in oil prices tied to the U.S.-Israeli war on Iran have driven concerns about inflation and boosted yields recently.
Investors such as hedge funds that have bet on yields rising may now be taking profits, said Tom di Galoma, managing director at Mischler Financial Group in Stamford, Connecticut.
“No one wants to be short the long end anymore,” he said, noting that the Treasury Department’s buyback program is helping to boost demand for longer-dated bonds.
Investors also were still digesting Wednesday’s Federal Reserve interest rate increase and the U.S. central bank’s signals for more rate increases ahead, with much uncertainty remaining over how far the central bank will raise rates to keep inflation in check.
“At first you saw rates rise, now you’re seeing a little bit of a giveback of yesterday, but I don’t think the market has truly figured out what’s going on here,” said Ron Albahary, chief investment officer at LNW in Philadelphia.
Traders see a roughly 53% chance of another increase when the central bank next meets in October, according to CME FedWatch.
Oil prices fell to a one-week low on Thursday following reports of additional Saudi crude cargoes through Oman that eased supply concerns.
Meanwhile, the Treasury Department saw soft demand for a $19 billion sale of 10-year Treasury Inflation-Protected Securities.
The debt sold at a high yield of 2.653%, more than two basis points ahead of where they traded ahead of the sale. Demand was 2.24 times the amount of debt on offer, the lowest since last September.
Yields held declines after data showing the number of Americans filing claims for unemployment benefits unexpectedly fell last week.
Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 196,000 for the week ended September 12, the Labor Department said on Thursday. Economists polled by Reuters had forecast 208,000 claims for the latest week. The surprise drop likely reflected volatility around last week’s Labor Day holiday. Claims are difficult to adjust for seasonal fluctuations around moving public holidays.
A separate report showed U.S. single-family homebuilding increased in August, but a drop in permits for future construction suggested the improvement was likely temporary.
BENCHMARK 10-YEAR YIELD BELOW 5%
The 10-year Treasury yield, which rose above 5.00% for the first time since 2023 earlier this week, was last down 6.1 basis points and on pace for its biggest drop since August 25, at 4.943%.
The yield on the 30-year bond declined 5.6 basis points to 5.292% and was also on track for its biggest decline since August 25.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 25.6 basis points after falling to 24.9, its flattest since June 25.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, shed 4.4 basis points to 4.683% and was set for its biggest drop since September 3.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.34% after closing at 2.353% on September 16.
The 10-year TIPS breakeven rate was last at 2.312%, indicating the market sees inflation averaging about 2.3% a year for the next decade.
(Reporting by Caroline Valetkevitch; additional reporting by Chuck Mikolajczak and Karen Brettell in New York, editing by Deepa Babington and Nick Zieminski)
