By Min Zeng 

U.S. Treasury bonds strengthened on Thursday, along with German government debt, after European Central Bank President Mario Draghi signaled downside risk to the region's economic growth.

The ECB held its interest rate at a record low Thursday. In a news conference, Mr. Draghi said both growth and inflation would be growing at a slower pace than the bank previously anticipated. The comments boosted speculation among traders and investors that the ECB could expand its bond-buying program to support flagging growth and keep deflationary threats at bay.

Lower yields in German government debt, the benchmark for the eurozone's debt market, increased the appeal of higher-yielding U.S. government bonds. The ripples sent the yield on the benchmark 10-year Treasury note to 2.168%, down from 2.193% on Wednesday, according to Tradeweb. Yields fall as prices rise.

"It appears that the ECB still has a great deal more bond buying to go before their program is able to reflate the European economy, which is helping U.S. Treasury bonds via the handle of lower expected global inflation," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott. Besides, "if the ECB is buying bonds, global demand for bonds is higher, which supports prices around the world," he said.

The yield on the 10-year German government bond fell by 0.05 percentage point to 0.745%. The yield on the 10-year U.K. government debt declined by 0.04 percentage point to 1.903%.

The bond market's strength was kept in check ahead of a key U.S. jobs report, due Friday, which will influence the timing for the Federal Reserve to raise interest rates for the first time since 2006.

Investors are grappling with dueling forces in the bond market. Volatile trading in riskier assets, a muddy global growth picture and subdued inflation raise the appeal to hold Treasury bonds. Yet the Fed is on course to increase interest rates, potentially as soon as later this month. Higher interest rates from the Fed would shrink the value of outstanding bonds as they will make newly issued bonds more attractive for buyers.

Economists expect Friday's data to show 220,000 nonfarm payrolls were created last month, continuing the solid job growth momentum in the U.S., which would support the Fed's plan to raise interest rates. The Fed's next policy meeting is Sept 16-17.

Global uncertainties and contained inflation threats have sent the 10-year Treasury yield lower after hitting this year's peak of 2.5% in June.

Write to Min Zeng at min.zeng@wsj.com

(END) Dow Jones Newswires

September 03, 2015 09:28 ET (13:28 GMT)