U.S. Treasurys prices rose on Wednesday as weaker U.S. and European stock prices and political tension in the euro zone boosted demand for safe-haven government debt.
France and Germany appeared to disagree over the value of the euro, whose recent strength could hurt corporate profits and a nascent economic recovery in the region. France said it would raise concerns about the euro's strength at next Monday's finance ministers' meeting, but German Chancellor Angela Merkel said the euro was not overvalued.
In Italy, gains in opinion poll by former Italian Prime Minister Silvio Berlusconi ahead of national elections later this month and corruption allegations against Prime Minister Mariano Rajoy of Spain raised concern about potential instability in the two euro zone economies.
Though it's "very difficult to see any sort of positive return from holding Treasurys and other sovereign debt," U.S. debt seems "relatively more attractive because of problems elsewhere," said Andrew Milligan, head of global strategy at Edinburgh, Scotland-based Standard Life Investments, with $263.9 billion in assets under management.
"Uncertainty about the outcome of Italian elections and what the corruption scandal in Spain might mean for Spain requesting European Central Bank support for its bonds could give U.S. Treasurys support in February," he said.
As a result, investors will be watching opinion polls and headlines in Spain for short-term direction, he said.
The behavior of the stock market, often reacting to those signals from Europe, has also influenced bond prices this week.
(Read More: 'Severe' Danger Looming in Corporate Bonds)
"Bonds are responding to what's happening in equities," said Jim Kochan, chief fixed income strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin. "When equities do better, Treasurys sell off, and when equities see selling, Treasurys do better."
Kochan said U.S. Treasury yields could drift upward, but not very far.
A yield on the 10-year note "at 2 percent, you find some buyers again," he said. The upward drift "might end at 2.05 percent or 2.10 percent. We haven't embarked on a long-run upward trend in Treasury yields. The trading range has just moved up a little bit since late December."
Bond prices also firmed when the Federal Reserve bought securities as part of its ongoing program aimed at keeping borrowing costs low and reducing unemployment.
The U.S. central bank bought $3.65 billion in government bonds to mature in November 2018 to January 2020.
Benchmark 10-year notes rose 8/32 in price to 96-30/32 while their yields eased to 1.97 percent from 2 percent late on Tuesday when Treasury prices fell.
The 30-year bond rose 19/32 in price at 91-28/32 while its yield eased to 3.17 percent from 3.21 percent Tuesday.
Wall Street share prices finished little changed with the S&P 500 stock index and the Dow Jones Industrials narrowly higher and the Nasdaq index slightly lower.
The U.S. Treasury Department said that in its quarterly refunding next week, it would sell $32 billion in three-year notes on Tuesday; $24 billion in 10-year debt on Wednesday; and $16 billion 30-year bonds on Thursday.
It also said it planned to reveal its final decision on selling floating-rate debt for the first time. Treasury expected the notes' debut to occur within the next year.
That "shows they are looking for different ways to add supply," said Jason Rogan, director of Treasurys trading at Guggenheim Partners in New York.
Current fiscal austerity with the prospect of more to come is also supportive for bond prices.
The recent move to temporarily raise the federal debt ceiling averted a government default but eliminated a temporary payroll tax cut households had enjoyed for two years.
Another political showdown over spending could lead to another package of budget cuts to kick in on March 1.
Further government reduction could depress economic activity as seen in the fourth quarter of 2012 when the gross domestic product contracted by 0.1 percent due partly to cutbacks in the government's defense spending.