World Stock Markets Rally, Treasury Yields Fall on Inflation Data

The yield on benchmark 10-year Treasury notes was last 2.7432%. It had hit a three-year high of 3.2030% earlier this month on fears that the Fed may have to raise rates rapidly to bring inflation under control.

Lower yields show the Fed's monetary policy is succeeding in tightening credit and slowing down prices, said BofA's Quinlan.

"The 10-year yield is suggesting we don't have to have inflation break above 9-10%," Quinlan said. "We are getting close to a peak in inflation."

The two-year yield, which rises with traders' expectations of higher fed fund rates, fell to 2.4839%.

German 10-year bond yields fell 4 bps to 0.955%.

Asian shares also benefited from hopes of stabilizing Sino-U.S. ties and more Chinese government stimulus.

The United States would not block China from expanding its economy, but wanted it to adhere to international rules, Secretary of State Antony Blinken said on Thursday in remarks that some investors interpreted as positive for bilateral ties.

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Emerging market stocks rose 1.98%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 2.17% higher, while Japan's Nikkei rose 0.66%.

The swing toward broadly positive market sentiment drove the dollar to one-month lows against an index of currencies.

The dollar index fell 0.059%, with the euro up 0.06% at $1.073.

Oil prices were near two-month highs on the prospect of a tight market due to rising gasoline consumption in the United States in summer, and also the possibility of an EU ban on Russian oil.

U.S. crude settled 98 cents higher, or up 0.86%, at $115.07 a barrel. Brent settled $2.03 higher, or up 1.73%, at $119.43 a barrel.

Spot gold added 0.2% to $1,852.83 an ounce.