U.S. Treasurys yields edged up from four-month lows on Wednesday after the Federal Reserve said it would stick to its plan to buy $85 billion in bonds each month, giving few indications of any new response to worsening economic data.
The U.S. central bank cited risks to growth from recent budget tightening in Washington and reiterated that unemployment is still too high for policymakers' comfort.
Yields had rallied heading into the meeting as some speculated that the Fed might adopt a markedly more dovish tone or indicate that it might increase its bond purchases as consumer inflation holds below the Fed's target of 2 percent.
"I don't think we've gotten anything terribly new," said Greg Faranello, a Treasurys trader at Societe Generale in New York. "Their statement that they are prepared to reduce or increase purchases basically tells you that they are somewhat economic sensitive at this point."
Benchmark 10-year Treasurys were last up 11/32 in price to yield 1.637 percent, after falling as low as 1.614 percent before the Fed statement, the lowest since December. Yields have dropped from around 1.67 percent earlier on Wednesday.
Thirty-year bonds were last up 26/32 in price to yield 2.839 percent, after dropping as low as 2.81 percent before the statement, also the lowest since December.
"If the growth stays where it is but the PCE (Personal Consumption Expenditures index) starts to dip further, you could get even more QE. So far we're seeing the bond market come under a little pressure, but it's still up substantially on the day," said Chris McReynolds, head of U.S. Treasury trading at Barclays in New York.
The next focal point for the market will be Friday's non-farm payrolls data for April, which is likely to show employers added 145,000 jobs, according to the median estimate of economists polled by Reuters. The data will be scoured for any signs of weakness after March's number came in well below expectations, at 88,000.
The ADP National Employment Report earlier on Wednesday said the U.S. private sector added 119,000 jobs in April, well below economists' expectations in a Reuters poll for 150,000.
An industry report said the pace of U.S. manufacturing growth also slowed in April.
The Institute for Supply Management said its index of national factory activity fell to 50.7 from 51.3 in March and its employment index fell to 50.2 from 54.2, boding poorly for the Labor Department's national employment report due on Friday.
The U.S. Treasury Department also said on Wednesday that it will consider cutting the size of its note and bond auctions if the U.S. budget deficit continues to come down, though it will hold the size of the auctions steady this quarter.
The Treasury has been slashing issuance of Treasury bills as it accumulates more cash from higher tax receipts and prepares for a new battle over the debt ceiling. That has led some to speculate it would also reduce the issuance of coupon-bearing debt.
It said on Monday that the government will pay down debt in the second quarter for the first time since before the economic crisis.
The government needs to reduce its cash balance by May 18, when the suspension over the debt ceiling will expire. This is because the suspension agreement forbids the Treasury from building up a cash buffer that could be used to delay a debt limit increase after that date.
The Treasury also agreed on Wednesday to set the interest rate for its planned floating-rate notes against the rate cleared at the weekly three-month bill auction.
The final rule on the notes should be issued in the coming months, and the first auction should happen either in the last quarter of this year or the first quarter of 2014.