U.S. Treasury yields came off their highs to close mostly flat on Thursday after brisk bidding for a debt auction in the afternoon, a sign that investors are still hungry for bonds despite worries that this year’s strong rally across all fixed-income assets have made their valuations expensive.

With European bond markets mostly closed again Thursday for a holiday, overnight trading in Treasurys was limited.

What are Treasurys doing?

The 10-year Treasury note yield

TMUBMUSD10Y, -0.18%

  was down 0.5 basis points to 1.904%, after touching an intraday high of 1.921%, while the two-year note yield

TMUBMUSD02Y, +0.25%

 edged 0.4 basis points lower to 1.635%. The 30-year bond yield

TMUBMUSD30Y, -0.45%

  was virtually flat at 2.336%.

What’s driving Treasurys?

The Treasury Department auctioned off $32 billion in seven-year notes, marking the last auction for coupon-bearing Treasurys this week. Like Tuesday’s debt sale, the aggressive demand helped to drive yields lower after the auction.

The auction “stopped through” by 0.8 basis points, an indication of strong appetite. This means the highest yield the Treasury sold in the auction was 0.8 basis points below the highest yield when the auction began — the “when issued” level.

In economic data, the latest reading of U.S. weekly jobless claims fell by 13,000 to 222,000 for the week ending in Dec. 21. Unemployment claims recently spiked due to a post-Thanksgiving holiday surge, but have started to return back to the low levels seen throughout this year.

The Wall Street Journal noted that the Federal Reserve could see more consensus in next year’s interest-rate decisions due to the annual rotation of the Federal Open Market Committee. Boston Fed President Eric Rosengren and Kansas City Fed President Esther George, both of whom were voting members this year and will lose their vote in 2020, dissented on the committee’s decision to lower interest rates three times in 2019.

What did market participants say?

“Despite the low volumes in the market on this day after Christmas, the buyside came in with solid, aggressive demand,” said Thomas Simons, senior money market economist at Jefferies.

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2019-12-26