Treasurys rose as investors flocked to low-risk bonds on weaker-than-expected durable goods data and sharp losses in U.S. stocks.
Safe-haven demand for U.S. government securities also emerged following news that Pakistani opposition leader Benazir Bhutto had been assassinated, which partly spurred selling in stocks, pushing U.S. equity indexes down more than 1 percent.
"Today's rally is on the back of durables. There was also some safe-haven buying from the Bhutto news," said Jessica Hoversen, fixed-income analyst at MF Global Research in Chicago.
A government report showed a slim 0.1 percent gain in durable goods orders last month, supporting the view of a weakening U.S. economy and more interest rate cuts from the Federal Reserve.
U.S. interest rate futures implied a 78 percent chance that the Fed would trim its federal funds target rate by a quarter percentage point to 4.00 percent at its January policy meeting, up from 68 percent on Wednesday.
But the day's economic news was not entirely dismal. The Conference Board said its index of U.S. consumer confidence improved slightly in December, a tad better than forecast.
The rebound in Treasurys from recent losses was also driven by renewed credit anxiety after a report from Goldman Sachs warned of more write-downs at several large banks. A Goldman analyst said Citigroup , Merrill Lynch and JPMorgan Chase may write off more than $33 billion of debt in the fourth quarter, double his earlier forecast on rising mortgage losses at those banks.
The benchmark 10-year Treasury note rose 18/32 in price, snapping a four-session losing streak. The yield slipped to 4.21 percent, a day after reaching its highest level since mid-November. Bond prices and yields move inversely.
The yield on two-year notes auctioned on Wednesday last traded at 3.226 percent, compared with the high yield of 3.285 percent set at the auction.
On the supply front, the Treasury Department sold $13 billion in new five-year notes to better demand than the poor reception of $22 billion in two-year debt Wednesday. But auction results on the five-year auction were below their long-term averages, according to analysts.