By Ellie Ismailidou, MarketWatch

The Fed cited concerns over global growth slowdown and market volatility

Treasury prices fell on Thursday, pushing yields to their highest level in nearly two weeks, after the minutes from the Federal Reserve's September meeting revealed policy maker's concerns about the global economy.

Treasury yields rise when prices fall and vice versa.

The report showed that the Fed kept interest rates at ultralow levels due to "global economic and financial developments." (http://www.federalreserve.gov/newsevents/press/monetary/20151008a.htm) The central bank decided it would be "prudent" to wait for more data to confirm the U.S. economy was growing at a moderate rate and labor market conditions had improved further.

Following the release of the minutes, Treasury yields initially fell and then surged, resulting in a 10-basis-point swing in less than one hour.

Fixed-income strategists were struggling to interpret the gyration in Treasury yields, particularly since rate-hike expectations, as reflected in the Fed-fund futures market, didn't change after the minutes.

"The minutes struck us as a tad dovish -- nothing big here -- but rather steady...and, notably, when the minutes came out, Fed-fund futures did nothing. The latter is perhaps the best manifestation of the market's view of things," David Ader, head of government bond strategy at CRT Capital Group, said in a note.

Others attributed the volatility to the content of the minutes.

There is a "circular relationship between market volatility and Fed policy," said Bryce Doty, senior fixed-income manager at Sit Investment Associates.

According to Doty, the Fed's uncertainty sparks market volatility but heightened volatility worries the Fed and so on. "It's like the tail wagging the dog," Doty said.

On balance, the yield on the benchmark 10-year Treasury note ended Thursday's session 4.6 basis points higher to 2.108%, its highest level since Sept. 25, according to Tradeweb. One basis point is equal to one hundredth of a percentage point.

Meanwhile, the yield on the 30-year bond gained 7.7 basis point to 2.961% while the yield on the two-year Treasury note climbed 0.8 basis point to 0.637%.

The market's rate-hike expectations dropped precipitously last week (http://www.marketwatch.com/story/treasury-yields-drop-to-5-month-lows-after-weak-jobs-report-2015-10-02), after the U.S. economy saw a surprising decline in payrolls in September.

On Thursday morning, the Labor Department said that the number of people who applied for U.S. unemployment benefits fell (http://www.marketwatch.com/story/jobless-claims-fall-to-263000-lowest-since-july-2015-10-08)in the week ended Oct. 3 to its lowest level since mid-July.

"Once again this week, the jobless-claims data suggest that the labor market continues the relentless march towards full employment. However the persistence of these low levels of claims stands in contrast to the weak payroll growth in both August and September," said Thomas Simons, an economist at Jefferies, in a note.

Abroad, European government bond yields declined after German exports saw in August their steepest drop since January 2009 (http://www.marketwatch.com/story/german-exports-in-steepest-fall-in-almost-7-years-2015-10-08).

The risk-off sentiment was enhanced by downbeat comments on growth outlook and inflation contained in the minutes from the European Central Bank's Sept. 3 meeting (http://www.marketwatch.com/story/ecb-saw-risks-to-inflation-over-the-summer-2015-10-08) and the Bank of England's October meeting.

The yield on the benchmark 10-year German bond known as the bund, lost 1.3 basis point to 0.585%.

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

October 08, 2015 17:07 ET (21:07 GMT)