U.S. Treasurys prices edged up on Wednesday as unexpectedly weak data on durable goods orders supported safe-haven demand for bonds and after solid demand for an auction of five-year notes.
The U.S. Treasury Department sold $35 billion in new five-year notes in the afternoon. Indirect bidders took a higher-than-average 43.6 percent of the auction, which investors viewed as an encouraging sign of demand from overseas central banks. That came on the heels of an average auction for two-year notes on Tuesday.
"We rallied nicely into the auction and we've managed to continue rallying afterward, even though it was only a moderate to good type of affair on the five-year," said David Keeble, global head of interest rates strategy at Credit Agricole Corporate & Investment Banking in New York.
Investors speculated that the auction may have attracted interest from Japanese investors who seek higher yields abroad after the Bank of Japan launched a $1.4 trillion asset-buying program that has been expected to depress domestic yields.
"The fact that the indirect bid turned up a little bit chunkier than usual gave the impression to some people that the Japanese are buying," Keeble said.
The Treasury will complete this week's debt offerings with a $29 billion seven-year debt auction on Thursday.
"We think the 7-year part of the curve actually looks attractive. We're anticipating that the auction will go fine tomorrow," said Chris McReynolds, head of U.S. Treasury trading at Barclays in New York.
The bond market has remained locked in a tight trading range since early April, with benchmark yields hovering near their lowest levels since December.
Recent disappointing data in the United States, Europe and China have fueled bets of a spring global slowdown for a third straight year, an occurrence that would force central banks to take action.
"Poor economic data could lead to some enhanced action from central banks, which has been bullish for stocks and other risk assets" and limit a further decline in Treasury yields, said Mike Lorizio, head of Treasurys trading at Manulife Asset Management in Boston.
Wednesday's report on durable goods orders that showed a 5.7 percent fall in March - the biggest drop since August - was the latest in a wave of disappointing data.
Benchmark 10-year Treasury notes were up 2/32 in price at 102-23/32 to yield 1.698 percent.
The 10-year yield was about 6 basis points above a four-month-plus low of 1.643 percent set on Tuesday after a false tweet from the Associated Press about explosions at the White House, which briefly sent stock prices plunging and bond prices soaring.
The 30-year Treasury bond were up 8/32 in price at 104-22/32 to yield 2.888 percent, down 1.3 basis points.
News that Italian President Giorgio Napolitano had picked center-left leader Enrico Letta as the new premier and had asked him to form a new government pressured U.S. bond prices downward and briefly lifted benchmark yields from their lowest levels of the year set on Tuesday.
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The move stoked hopes that national leaders would turn their focus toward solving the fiscal problems that have bogged down Italy, the euro zone's third-biggest economy, though doubts persisted over whether Letta could cobble together a broad-based coalition for a confidence vote by next week.
Uncertainties over the formation of an Italian government and the discouraging U.S. durable goods report, however, were not enough to snuff out investors' interest in stocks, which limited a rise in Treasurys prices, analysts said.