U.S. Treasurys prices gained for a third straight week as resurgent fears over the euro zone helped bonds claw back losses from January and February and end the quarter only slightly weaker on Thursday, after a turbulent start to the year when investors bet on a strengthening economy.
The U.S. bond market closed at 2 p.m. on Thursday, and it will remain shut for the Good Friday holiday.
Benchmark 10-year Treasurys yields have fallen to near three-week lows on fears that losses that bondholders and banks depositors in Cyprus are taking to restructure their banks will form a template for other countries in the euro zone that are struggling with high debt loads.
(Read More: Remember Euro Breakup Fears? They Are Back)
The safety bid caught many investors by surprise, as they were positioning for higher U.S. rates in light of improving U.S. economic data, and traders and analysts said short covering by these accounts added to the Treasurys rally.
"We've seen a resurgence of risk and quarter-end come together to take yields lower, and I think a lot of people might have been caught offside in this,'' said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
Benchmark 10-year note yields traded at 1.85 percent on Thursday, little changed from late on Wednesday. They rose as high as 2.09 percent on March 8, after ending last year at 1.76 percent.
Barclays' total return index on U.S. Treasurys fell 0.13 percent in the first three months of 2013, after a 0.09 percent decline in the fourth quarter of last year.
Many still expect yields to gradually march higher as the economy continues to strengthen.
"What we're going to be seeing is two steps forward, one step back in terms of price action,'' said Goldberg. TD has a year-end yield target of 2.30 percent for 10-year notes.
Next week's U.S. monthly payroll number will be closely scrutinized for signs of further improvement in hiring. The data is expected to show that 200,000 jobs were added in March, according to the median estimate of economists polled by Reuters.
Price losses were mitigated earlier on Thursday by data showing a steep decline in U.S. Midwest manufacturing, which revived some concerns the U.S. economy might slow in spring and summer as it did in the previous three years.
Relative calm in Cyprus, where banks reopened under tight government control after they were shut for nearly two weeks and the island nation received a 10 billion euro bailout, diminished some safe-haven demand for U.S. bonds on Thursday.
"All things are orderly in Cyprus. That's a good sign for investors before the long weekend,'' said Jason Rogan, managing director of Treasurys trading at Guggenheim Partners in New York.
Still, appetite for bonds emerged as longer-term worries about Europe persisted.
"A lot people don't want to go home short so that will put a floor on prices,'' Rogan said.
Many major European markets will be closed on Friday and Monday.
The Treasury also sold $29 billion in seven-year debt to slightly weak demand on Thursday, the final sale of $99 billion in new coupon-bearing supply this week.
Lackluster bids for new seven-year notes resulted in their yields clearing at 1.248 percent, about half a basis point higher than what traders had expected.
Separately, the U.S. Federal Reserve purchased $4.762 billion in Treasurys that mature in March 2017 to November 2017. It was the latest purchase for the Fed's bond program, dubbed QE3, aimed to hold down mortgage rates and other long-term borrowing costs to support the economy.
The Fed will buy between $2.75 billion and $3.50 billion in notes due between 2020 and 2023 on Monday as part of this program.