WASHINGTON (Aug 20): US Treasury yields on Thursday erased much of the prior day's declines, returning to their upward trend despite the Treasury Department's Wednesday announcement of liquidity support for long-dated notes and bonds.

The rise pointed to persistent pressure on long-term borrowing costs for the world's largest economy, with US sovereign debt now surpassing US$40 trillion for the first time.

The US Treasury Department on Wednesday said it would "at least" double the size of liquidity support buybacks for longer-dated Treasuries, which then saw sharp drops in yields on 10-year, 20-year and 30-year Treasuries, helping ease a global selloff in sovereigns.

Meanwhile, US President Donald Trump warned of "economic warfare" against any country that offers support to Iran as the United States seeks to resolve a war it launched in February along with Israel that has sent shocks through oil supply chains, driving up prices and putting upward pressure on inflation.

Robert Tipp, chief investment strategist and head of global bonds at PGIM, said that even if yields had reversed some of their declines, the Treasury did appear successful in blunting the upward drive in long-dated yields.

"I think (Thursday's) price action in the market in some respects is ratifying the decision," Tipp said, noting that, given the fundamentals of inflation and rising US sovereign debt, actually pushing down long-term yields is "not a reasonable objective."

There was little economic data to move markets in late summer trading. The Labor Department reported that weekly first-time claims for unemployment benefits were in line with economists' expectations at just over 200,000.

Later Thursday, the United States is due to auction 30-year inflation-protected bonds.

The yield on the benchmark US 10-year Treasury note was last up 4.5 basis points to 4.698%. The yield on the 30-year bond rose 4.5 basis points to 5.239%.

A closely watched part of the US 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 50.2 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 1.5 basis points to 4.194%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.304% after closing at 2.289% on Wednesday.

The 10-year TIPS breakeven rate was last at 2.316%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

Uploaded by Lam Seng Fatt