Bond yields declined as markets reacted to central-bank moves and oil prices slipped.

The Bank of England kept its policy rate unchanged at 3.75%, as expected. The decision came after the U.S. Federal Reserve's well-anticipated quarter-point interest-rate hike, which brought the fed funds target rate range to 3.75%-4.00% in a unanimous vote Wednesday. Fed officials indicated another rate hike could happen this year, although Chairman Kevin Warsh was noncommittal. Investors approved of the resolve to fight inflation.

"The unanimous Federal Open Market Committee vote says more than the 25-basis-point hike itself," Natalia Lojevsky, managing director of CIFC Asset Management, said in a note.

The two-year Treasury yield, which tracks Fed moves more closely, gave back some of Wednesday's increase and traded at 4.677% Thursday. The 10-year yield was recently at 4.947% after rising past 5% on the Fed's hawkish move. Yield levels now trade below recent multiyear highs reached earlier this week.

Wednesday's Fed decision "marked important steps towards reestablishing policy credibility and making the Fed's reaction function more transparent," Marco Valli, head of macroeconomic analysis and chief economist at the Investment Institute of UniCredit, said in a note.

Fed Chairman Kevin Warsh faced increasing pressure to align policy action with his hawkish rhetoric, and Wednesday's decision "reduces the risk that investors question the Fed's inflation-fighting resolve," Dan Siluk, head of global short duration and liquidity at Janus Henderson, said in a note.

Eurozone government bond yields turned lower after the BOE's hold. Ten-year U.K. government bond yields declined to 5.205% from 5.307%. The 10-year bund slipped to 3.486% from 3.516%.

A decline in oil prices helped drive yields down. Brent fell 3% to $103 a barrel. Meanwhile, the U.S. labor market gave new signs of resilience as weekly jobless claims declined, indicating mass layoffs remained at bay. On the other hand, residential construction contracted in August.

With Warsh reducing forward guidance, markets are divided about the rate outlook and were pricing nearly even odds of another hike or a hold in October.

"Higher oil prices stemming from continued conflict in the Middle East could keep inflation elevated, but monetary policy works with long and variable lags, and additional increases would put more pressure on consumers and businesses already facing elevated borrowing costs," said Steve Rick, chief economist at TruStage.

"The Fed should give this increase time to work before determining how much additional restraint is necessary," he said.