Treasury 30-year inflation-protected bonds show investor expectations for gains in consumer prices over the life of the securities at the lowest since 2011, with tumbling oil prices outweighing a rise in wholesale prices.

The Treasury 30-year bond yield declined Tuesday ahead of Thursday's Labor Department report that is forecast to show the consumer price index fell last month. Crude-oil futures sank, trading at almost a four-year low, while U.S. producer prices unexpectedly rose. Foreign holdings of U.S. government debt declined in September as several of the largest creditors to the U.S., including China and Japan, reduced their position in the securities, the Treasury reported.

“The primary reason for inflation expectations falling in the U.S. is the fall in energy prices,” said Jonathan Mackay, a New York-based strategist at Morgan Stanley Wealth Management. “That is keeping bond yields down.”

Thirty-year yields fell two basis points, or 0.02 percentage point, to 3.04 percent at 5:43 p.m. New York time, according to Bloomberg Bond Trader data. The price of the 3 percent security due in November 2044 increased 15/32, or $4.69 per $1,000 face amount, to 99 1/4.

The benchmark 10-year note yield dropped three basis points to 2.32 percent. It traded in a 3.36 basis-point range, the narrowest since Sept. 22.

The difference between yields on 30-year bonds and comparable Treasury Inflation Protected Securities, a gauge known as the break-even rate, was 2.03 percentage points, the narrowest on a closing basis since October 2011. It reached a 2014 closing high of 2.45 percentage points in January and has averaged 2.27 this year.

Volume Drops

The volume of Treasurys traded through ICAP Plc, the largest inter-dealer broker of U.S. government debt, decreased 15 percent to $217 billion, the lowest this month, compared with a daily average of $331 billion this year. It climbed to $946 billion on Oct. 15, the highest on record.

A measure of volatility increased for the first time in three days. Bank of America Merrill Lynch’s MOVE Index, which measures price swings in Treasurys based on options, rose to 69 after touching 67 on Nov. 10, the least since Oct. 9. The measure reached a reading of 101 on Oct. 15, the highest since Sept. 10, 2013. The 2014 average is 61.

Foreign Holdings

Total foreign holdings of U.S. government debt fell by $6.2 billion, or 0.1 percent, to $6.06 trillion in September, Treasury data showed. China’s stake fell by $3.4 billion to $1.27 trillion, and Japan’s shrank by $9 billion to $1.22 trillion.

The inflow of U.S. government notes and bonds in September totaled $48.1 billion, the most since February, the Treasury said. The drop in total holdings came as securities matured and rolled off of portfolios or were sold.

Brent crude-oil futures dropped 1.1 percent to $78.42 a barrel. They reached $76.76 on Nov. 14, the lowest on an intraday basis since September 2010.

The U.S. producer-price index rose 0.2 percent in October, following a 0.1 percent drop the prior month, the Labor Department said Tuesday in Washington. The median estimate in a Bloomberg survey called for a 0.1 percent decline.

Bond traders focused on the drop in oil rather than on wholesale-price gains because the signal of more inflation “doesn’t make any sense because oil’s been doing nothing but trading off,” said Thomas di Galoma, head of fixed-income rates and credit at ED&F Man Capital Markets in New York.

CPI Report

The Labor Department is expected to report Thursday that consumer prices fell 0.1 percent in October from the previous month, according to the median forecast of 84 economists in a Bloomberg News survey. The consumer price index is forecast to have risen 1.6 percent for the 12-month period, the slowest pace of increases since March.

The decline in the price of oil “hits on near-term realized inflation, and we do expect the October reading to be negative on a headline basis,” Michael Pond, head of global inflation-linked research at Barclays Plc, said of the CPI. The firm is one of 22 primary dealers that trade with the Federal Reserve.

At the same time, Barclays economists are forecasting lower oil prices will fuel an increase in personal spending, according to Pond.

“To some extent, for the U.S. consumer it’s like a tax cut,” Pond said. “It should be near-term negative but has the potential to be positive from a forward-looking perspective.”

‘Credibility Risk’

Inflation readings using the Fed’s preferred measure of prices, personal consumption expenditures, have held below policy makers’ 2 percent target for more than two years. The index was at 1.4 percent in September.

Fed Bank of Minneapolis President Narayana Kocherlakota said the central bank is “creating a risk for ourselves on the credibility front” with inflation so low for so long. Kocherlakota spoke to reporters after a speech in St. Paul, Minnesota.

The U.S. central bank has kept the target for the federal funds rate, which banks charge each other on overnight loans, in a range of zero to 0.25 percent since December 2008.

The Fed will release minutes Wednesday from its Oct. 28-29 meeting, when policy makers ended bond purchases intended to keep borrowing costs low.

Policy makers retained a pledge to keep interest rates low for a “considerable time” after they ended the bond-buying program. The timing will depend on progress toward policy makers’ twin goals of maximum employment and 2 percent inflation, they said.