Treasury market volatility fell to almost the lowest in a year as Federal Reserve Chair Janet Yellen resumed testimony to lawmakers after saying Tuesday that monetary stimulus is still required.

The difference between five- and 30-year yields narrowed to the least in a week after Yellen pointed to “significant slack” in labor markets and said interest rates were likely to stay low for a considerable period after bond purchases end. Yellen reiterated a decision to release stimulus-exit-plan details later this year. A report showed Industrial production growth slowed more than forecast in June.

“People have been living on pledges of the uber-doves to keep rates low,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “She indicated things are better than expected. She still couched it by talking about risks.”

The U.S. 10-year yield was little changed at 2.54 percent at 12:11 p.m. New York time, according to Bloomberg Bond Trader data. The price of the 2.5 percent note due in May 2024 was at 99 20/32. The yield reached 2.49 percent on July 10, the least since June 2.

Bank of America Merrill Lynch’s MOVE Index, which measures price swings in Treasurys based on options, fell for a third day Tuesday, declining to 54.03 basis points from 54.42. It dropped to 52.74 on June 30, the lowest since May 2013. The gauge has averaged 91.7 during the past decade.

Foreign Demand

Treasurys held by China, the largest foreign holder of the debt, rose for the first time in four months by $7.7 billion or 0.6 percent in May to $1.27 trillion, according to the U.S. Treasury Department. The country’s holdings are little changed for the year.

Japan, the second largest foreign holder of U.S. government securities, increased its position in the debt by $10.4 billion or 0.9 percent to $1.22 trillion, its most ever, the Treasury said.

Total foreign holdings of Treasurys increased $15.1 billion, or 0.3 percent, to a record $5.98 trillion. It was the 10th consecutive monthly jump, the longest streak since the 15- month period from January 2012 through March 2013.

Overseas investors have boosted their stake in U.S. government debt by 2.7 percent this year, or $174 billion, after rising 4.1 percent last year, the smallest gain since 2006.

Volatility Declines

Volatility across asset classes has tumbled this year as central banks around the world pledged to keep interest rates lower for longer to support the economic recovery. Those same policies are also underpinning demand for fixed-income securities even as they stimulate growth.

The Bloomberg Global Developed Sovereign Bond Index returned 4.7 percent this year through Tuesday, recouping last year’s loss of 4.6 percent, while Bank of America Corp.’s Market Risk Index, which uses options to forecast fluctuations in equities, currencies, commodities and bonds fell to its lowest level since at least 2000 this month.

“A high degree of monetary policy accommodation remains appropriate,” Yellen said in her semi-annual testimony prepared for delivery to the Senate Banking Committee. “Although the economy continues to improve, the recovery is not yet complete.”

Signs of labor-market slack include slow wage growth and low labor-force participation, she said.

Fed View

“Yellen remains concerned about the pace of the recovery and is willing to wait a bit longer — maybe at the risk of being behind the curve a little bit,” said Sean Murphy, a trader in New York at the primary dealer Societe Generale SA.

The yield spread between five-year notes and 30-year bonds, known as the yield curve, shrank as low as 165 basis points, after contracting to 164 on July 9, the least since March 2009.

Shorter maturities are more sensitive to what the Fed does with interest rates, while longer-dated debt is more influenced by the outlook for inflation.

Industrial production climbed 0.2 percent in June following a revised 0.5 percent advance in May, figures from the Fed showed. The median forecast in a Bloomberg survey of economists called for a 0.3 percent advance.

“The market thinks the Fed is going to be striking the same tone for some time to come,” said Orlando Green, a fixed- income strategist at Credit Agricole SA’s corporate and investment banking unit in London. “It doesn’t give the market enough impetus to start to sell off.”

The amount of Treasurys traded through ICAP Plc, the largest inter-dealer broker of U.S. government debt, climbed to $342 billion Tuesday, from $159 billion the previous day. The daily average volume this year is $332 billion.