Bond relief ebbs, stocks mixed as investors question Treasury's rescue efforts

By Niket Nishant and Rae Wee

Aug 20 (Reuters) - U.S. government bonds sold off again following a brief reprieve on Thursday, pushing yields higher and keeping stocks under pressure as investors questioned whether U.S. Treasury support measures would provide lasting relief.

Yields on the 30-year U.S. government bond rose 5.4 basis points to 5.247% after falling to 5.1765% earlier, a day after the Treasury's pledge to buy back more longer-dated debt stalled a sharp decline in bond prices. Yields move inversely to prices.

The moves were being closely watched to gauge markets' faith in the U.S. Treasury's ability to stem a rout that has sent shockwaves across multiple asset classes.

Stocks were mixed, with the MSCI index of global stocks up 0.3% after falling for four consecutive sessions, its longest losing streak since March, and U.S. major indexes lower across the board. The Nasdaq fell 1% and the S&P 500 dropped 0.9%.

"The buyback announcement is more of a band-aid than a panacea. But it is a reminder that the Treasury Department is paying attention and will do whatever it can to keep yields from getting too high too quickly," said Lawrence Gillum, chief fixed-income strategist at LPL Financial.

The benchmark 10-year yield rose 4.7 bps to 4.7%, following a 5 bps fall on Wednesday. Yields on government bonds in Germany and Japan, however, eased.

SOUR SENTIMENT WEIGHS ON STOCKS

The pan-European STOXX 600 slipped 0.12%. Higher bond yields often pressure stocks.

Elevated oil prices also hit sentiment. Brent crude futures rose 2% to $93.49 a barrel as disruption in the Strait of Hormuz showed few signs of easing. [O/R]

"You're hitting a point where inventories can become a problem," said Tom Samuelson, chief investment officer at Vineyard Global Advisors.

U.S. stockpiles of distillate fuel, including diesel and heating oil, have fallen for three consecutive weeks. Still, crude and gasoline inventories rose last week.

Enthusiasm about AI investment remains strong and semiconductor stocks rose on Thursday following declines earlier in the week.

"It's penny-wise, pound-foolish for tech companies to worry about where the yield curve is. The fundamental story for AI charges ahead regardless," said Marta Norton, chief investment strategist at retirement and wealth services provider Empower.

Tech firms cannot afford to stop their AI spending given the potential hit to their businesses if they fall behind, a dynamic that may limit the impact of bond market turbulence on AI stocks, Norton added.

In currency markets, the euro was flat after earlier rising 0.16% to $1.1695, hitting its highest since May.

The yen weakened 0.6% to 159.12.

The dollar index, which measures the U.S. currency against six major peers, was up 0.06% at 98.89.

Minutes of the Federal Reserve's latest policy meeting released on Wednesday showed that concern about inflation deepened, with "several" policymakers appearing ready to raise interest rates and "many" saying a hike in borrowing costs would be needed if inflation does not decline to the central bank's 2% target.

(Reporting by Niket Nishant in Bengaluru and Rae Wee in Singapore; Editing by Jamie Freed, Thomas Derpinghaus, Alex Richardson, Hugh Lawson, Colin Barr, Rod Nickel and Will Dunham)