By Sam Goldfarb 

U.S. government bond prices reversed early declines Thursday, gaining strength as selling accelerated in the stock market.

In recent trading, the yield on the benchmark 10-year Treasury note was 3.171%, according to Tradeweb, compared with 3.178% Wednesday.

Yields, which rise when bond prices fall, have been climbing this week after slipping last week when U.S. stocks suffered their worst declines since March.

While stocks staged a sharp rally Tuesday, they fell Wednesday and were down again Thursday, providing a favorable environment for Treasurys, which investors often turn to as relatively safe investments when risks are rising elsewhere.

Still, investors have been selling stocks partly in response to the recent push higher in Treasury yields, which could yet have enough momentum to withstand the blowback of volatility, analysts and traders say.

"Generally speaking, people are expecting higher yields going forward, so the market is going to have to find a spot where new money comes in and buys it," said Daniel Mulholland, head of U.S. Treasury trading at Crédit Agricole.

After closing at a seven-year high of 3.227% on Oct. 5, the 10-year yield dropped to 3.131% a week ago before rising again.

Investors and analysts have identified a variety of reasons why Treasury yields have been climbing in recent months, ranging from increased currency hedging costs for foreign buyers to the expanding supply of bonds needed to fund a growing federal budget deficit.

Most, though, agree the selling has been underpinned by the continued strength of the U.S. economy, which has heightened the risk of rising inflation and made it more likely that the Federal Reserve will keep nudging up short-term interest rates.

Minutes of the Fed's Sept. 25-26 meeting released Wednesday showed "a number" of officials believed they would need to raise the federal-funds rate higher than their long-run target of 2.75%-3% "to reduce the risk of a sustained overshooting" of inflation or "significant financial imbalances."

Overall, it seems the Fed is moving "full steam ahead" with rate-increases every quarter "until something breaks," said Tom Graff, who manages bond portfolios at Brown Advisory.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

October 18, 2018 12:13 ET (16:13 GMT)