U.S. Treasurys prices rose on Wednesday as weak economic data and falling stock prices spurred safe-haven bids, with investors waiting for government payroll numbers later in the week to help clarify whether the Fed could soon pause a massive easing program.
A report by payrolls processor ADP showed U.S. private employers added 135,000 jobs in May, less than the 165,000 expected in a Reuters poll.
Bond prices rose on the ADP news and again when service-sector data from the Institute for Supply Management showed employment in that part of the economy grew at its lowest rate in nearly a year in May.
(Read More: US Employers Pay Less in Q1, but Get More Work)
Major stock index retreated more than 1 percent on Wall Street, giving investors further incentive to buy safe-haven U.S. debt.
"The general theme is weakness across everything, with the exception of mild strength in Treasurys," said Matthew Duch, portfolio manager at Calvert Investment Management Inc in Bethesda, Maryland. "You've got to find stabilization somewhere," he said.
But until Friday's release of nonfarm payrolls figures by the U.S. Labor Department, Duch added, that stability will be hard to find.
(Read More: US Services Sector Growth Beats Estimates in May)
The benchmark 10-year Treasury note traded up 18/32, while its yield eased to 2.088 percent from 2.15 percent late on Tuesday.
Thirty-year bonds were up 1-9/32, their yields easing to 3.244 percent from the 3.32 percent late on Tuesday.
Wednesday's disappointing ADP figure and the subdued ISM index employment reading could keep the U.S. Federal Reserve from withdrawing some of its easing measures just yet. In addition, the Fed's Beige Book showed that, despite economic growth, hiring has remained relatively tepid.
The U.S. central bank is currently buying $85 billion per month in Treasurys and mortgage-backed securities. But with Fed policymakers recently suggesting they could be looking for an exit strategy, investors have been concerned that support for Treasurys could soon wane.
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The data "is not keeping pace with the Fed's hope that they will get unemployment under 6.5 percent anytime soon and has the bears covering Treasury shorts," said Tom di Galoma, head of fixed-income sales at ED&F Man Capital.
Recent days had seen a spike in bond shorts, or bets that Treasury bond prices will fall further, analysts said. Shorts, especially against the 10-year issues, had increased, making it more expensive for traders to borrow Treasurys in the repurchase agreement, or repo, market.
Stock market losses, wider credit spreads and bank purchases of mortgage-backed securities also fed the bid for safe-haven Treasurys, di Galoma said.
Fed policymakers want to see the unemployment rate fall to around 6.5 percent from its current 7.5 percent, with a sustained run of healthy jobs gains. They also want inflation to reach 2 percent; it has been running substantially under that level.
Economists recently polled by Reuters forecast U.S. employers likely added 170,000 jobs in May, while the jobless rate was seen unchanged.
The government's May payrolls report on Friday could show whether job growth is strong enough for the U.S. central bank to consider tapering bond purchases. A particularly strong payrolls number could push benchmark yields higher, but a poor figure could mean a slip in yields, perhaps even below 2 percent.
"Bad news is good news ... because it keeps the Fed accommodative, buying bonds and (keeping) interest rates low," said Tim Ghriskey, chief investment officer of Solaris Group.
The Fed will hold its next policy meeting on June 18-19.