U.S. Treasuries prices rose on Tuesday, with benchmark yields hovering near two-week lows, as traders brushed off a weak $30 billion auction of three-year notes, part of this week's $64 billion in coupon-bearing government debt.
The bond market has stabilized after a dismal 2013 as evidence of cooling in car sales and the services sector raised bets the Federal Reserve would pare its massive bond-purchase program very slowly in coming months.
Bond-market-friendly remarks from two top Fed officials spurred some appetite for Treasuries, which posted a 2.75 percent negative return in 2013.
"The market is in a holding pattern. Fixed investments are doing okay," said Sean Simko, head of fixed-income management at SEI Investments in Oaks, Pennsylvania.
The U.S. central bank said last month it will buy $75 billion in Treasuries and mortgage-backed securities from January, $10 billion less per month than what it had been purchasing in its effort to support the economic recovery.
Fears about the Fed tapering its purchases resulted in the Treasuries market in 2013 recording its third-biggest annual loss in 40 years. Now some investors are reconsidering seeing the Fed move as a shift in its accommodative tilt and reckon the current yield levels are an over-reaction to the tapering.
"I'm paying attention to the tapering. They haven't stopped that. They are still trying to buy bonds to help increase ... growth," said James Barnes, fixed income portfolio manager at National Penn Investors Trust Co. in Wyomissing, Pennsylvania.
On Tuesday, Boston Fed President Eric Rosengren, who is not a voter on the Federal Open Market Committee this year, said the Fed will reduce its current third round of bond purchases "only gradually" because the economy, while improving, remains fragile as price growth remains too low.
Still, the economy has proven resilient. The Commerce Department said on Tuesday the U.S. trade deficit shrank to a four-year low in November on record exports.
San Francisco Fed President John Williams told a bankers group in Phoenix he expects the Fed will likely keep short-term interest rates near zero in the "foreseeable future." He is not a voter on the policy-setting FOMC this year.