Treasury debt prices revived as news of another slide in home prices and in consumer confidence reminded buyers of the uncertain outlook for the US economy.
The gains erased just a small portion of the previous day's steep losses, however. On Monday, investors' increased faith in Federal Reserve efforts to steady the financial system caused the bid for safe-haven Treasurys to dwindle.
"The false optimism from the (February) existing home sales rise reported yesterday has to be tempered by (March) consumer confidence levels being dismally low," said Josh Stiles, senior bond strategist at IDEAglobal in New York, referring to the drop in the Conference Board's index of consumer confidence to a five-year low in March.
Consumers' expectations for the future tumbledto their lowest in 34 years, the Conference Board said.
Stiles said the aspect of the consumer confidence report showing that more people were pessimistic about the job market was significant for the economic outlook.
"If people are worried about their jobs and personal debt levels are high," they will not spend normally, he said. That is significant because consumer demand drives about two-thirds of economic growth.
Bond investors were also reminded that housing sector weakness persists despite recent efforts by the Federal Reserve to aid the mortgage market. Standard & Poor's said its S&P/Case-Shiller home price index fell sharply in January with most regions in the country suffering record price declines.
Traders said Tuesday's data were "not friendly" for the economy, but "friendly" for bond prices.
But in the context of Monday's sharp sell-off, the gains bonds made on those data were relatively modest, analysts said.
Upcoming supply of two- and five-year notes and relative calm in the credit markets kept buyers cautious, they said.
"There's been a significant shift in sentiment; it doesn't look like another major investment bank will go under," Stiles said. "In addition, the upsized auctions of 2s and 5s will provide a lot of supply to get through."
The Treasury will sell $28.0 billion of two-year notes on Wednesday and $18.0 billion in five-year notes on Thursday.
Stiles said the benchmark 10-year note yield, at 3.51 percent at midday, could have trouble moving below 3.50 percent unless "stocks fall out of bed."
At midday, stocks were trimming early losses. The Nasdaq composite index was narrowly in the plus column.
As that occurred, Treasurys trimmed some of their gains.
Two-year Treasury notes were up 3/32 in price after being up 5/32 earlier. Their yields were at 1.78 percent, down from 1.81 percent late on Monday.
Five-year notes were up 3/32, their yields easing to 2.61 percent from 2.62 percent on Monday.
The 30-year bond was up 14/32 after plunging 3 full points on Monday. Earlier in the session, it was up 19/32.
Its yield eased to 4.34 percent.
On Monday, prices of safe-have government debt fell when Wall Street surged on news that JPMorgan Chase raised its offer for Bear fivefold to $10 a share and on a surprise jump in February existing home sales.