Treasury debt prices turned higher Wednesday, erasing earlier losses, as U.S. stocks pared gains, restoring government bonds' safe-haven appeal.
The benchmark 10-year Treasury note's price, which moves inversely to its yield, rose 2/32 for a yield of 4.036 percent, versus 4.044 percent late Tuesday.
Stocks shed some gains as U.S. crude oil rebounded above $125 per barrel, reawakening concerns that high energy costs will add to consumers' pain and drag on the economy, and as financial stocks slipped.
"The strong opening in the equity market hasn't held, attributable to the rebound in oil, and as that has come full circle it has helped Treasurys come back," said Mark Freeman, senior vice president and portfolio manager with Westwood Holdings Group in Dallas.
The unexpected increase in U.S. private payrolls in July earlier allayed worries about deterioration of the labor market and the overall economy, sending bond price down while also reviving concerns the Fed may raise interest rates later this year to fight inflation. The prospect of rate increases is negative for bonds.
"This number extends the debate about the economy," said T.J. Marta, fixed-income strategist at RBC Capital Markets in New York. "This does suggest a possible upward surprise in non-farm payrolls," he said of the government's employment figures to be released Friday.
The ADP National Employment Report showed companies added 9,000 jobs in July, compared with a revised 77,000 drop in June. Analysts polled by Reuters had forecast a 60,000 fall.
The U.S. Treasury Department said it planned to sell $17 billion of 10-year notes and $10 billion of 29-3/4 year bonds next week. That is more supply of these longer maturities for August than was expected, wrote Ian Lyngen, interest rate strategist at RBS Greenwich Capital in Greenwich, Conn., in a note. (CNBC'sSteve Liesman analyzes the Fed move in the video at left.)
The Treasury added that changes in the economy, markets and fiscal policy have caused an increase in borrowing needs, adding that it will consider second reopenings of the 10-year note and a quarterly new 30-year bond issue.
The issuance plans contributed to downward pressure on longer-dated government note and bond prices on Wednesday, analysts said.
The Fed said it was extending a credit facility for primary dealers in one of several steps to boost liquidity in stressed financial markets.
The U.S. central bank said its Primary Dealer Credit Facility (PDCF) and its Term Securities Lending Facility (TSLF) will be extended through Jan. 30.
It also said that it will introduce 84-day Term Auction Facility (TAF) loans, which it said will complement its existing 28-day TAF loans. The Fed introduced the loans program to try to ease a credit crunch that policy-makers feel has shown only limited signs of easing.