U.S. Treasury debt prices rose on Wednesday for the first time in a week after data revealed weakness in manufacturing and subdued inflation.
U.S. industrial production fell more than expected in April, down 0.5 percent. More timely regional data suggested more contraction could be coming. The New York Fed's "Empire State" general business conditions index reflected contraction in May, contrary to expectations for growth.
In addition, the U.S. Labor Department said on Wednesday its seasonally adjusted producer price index fell 0.7 percent last month, the biggest decline since February 2010.
That combination of economic weakness and slow inflation, analysts said, suggested that the Federal Reserve could continue its massive easing program for months, if not longer.
"So we've got slower growth, sliding inflation and central bank stimulus," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
"Today's data add to expectations that there's not going to be any slowing in central bank stimulus anytime soon," she said.
Still, the bond market's gains were restrained somewhat by investors' interest in riskier assets like stocks, which made further headway on Wall Street.
Key U.S. stock indexes have posted a series of record highs this year as investors seek more yield than that available on safe-haven U.S. debt.
"How many more all-time highs do you have to break before people start getting out of riskless assets and start putting the money to work elsewhere," said Gennadiy Goldberg, a U.S. strategist with TD Securities in New York.
"It takes awhile for consumers to switch around their 401k funds, things like that," he added, noting that those investors could now be reallocating their assets into stocks and away from Treasurys in the face of Fed easing.
The Fed is now buying $85 billion per month in Treasurys and mortgage-backed securities in a bid to boost the U.S. economy and bring down stubborn unemployment.
Prices for 10-year notes rose 9/32. Their yields eased to 1.946 percent from 1.977 percent late on Tuesday.
Prices for 30-year bonds climbed 18/32. Their yields eased to 3.162 percent, from 3.194 percent on Tuesday.
Bond investors are trying to gauge when the Fed might scale back its bond purchases, part of its program of monetary accommodation, said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey, with more than $1 trillion in assets under management.
"But now that yields have risen this much, we're seeing a certain amount of resistance to taking yields higher," he said.
Ten-year Treasury yields have risen about 30 basis points since the beginning of the month.
Behind the hesitation to push 10-year yields above 2 percent are reports like Wednesday's industrial production figures which underscore the continued potential for weakness in the world's biggest economy.
Another reason for caution is the state of the economy outside the United States.
"Europe is in the midst of a deep recession, Japan is just beginning an aggressive - and not without risk - experiment to stimulate their economy, and in most of the rest of the developed and emerging market world, growth numbers are coming in below expectations," Tipp noted.
The unemployment rate also remains at 7.5 percent, a full percentage point above the 6.5 percent that Fed policymakers want to see. And even that level, policymakers have emphasized, would not necessarily signal the beginning of the end of monetary accommodation.
With inflation well below the Fed's 2 percent target, there are few concerns that upward price pressures will hamper growth.
"Over the next year at least, inflation is more likely to be too low rather than too high," said Paul Dales, senior U.S. economist with Capital Economics in Toronto.