U.S. Treasury debt prices rose on Wednesday, even after records of the Federal Reserve's January meeting showed policymakers discussed the slowing or stopping of Fed bond purchases that are aimed at reducing unemployment.
The bond market weakened briefly on the latest minutes from the Federal Open Market Committee, the U.S. central bank's policy-setting group, but rebounded as a fall in stock prices on the news rekindled some safe-haven bids for bonds.
"Generally, these are more hawkish than the market had expected and show a waning commitment to the QE program," said David Keeble, global head of interest rate strategy in Credit Agricole Corporate & Investment Bank in New York.
The U.S. central bank's third round of bond buying, dubbed QE3, has propped up the prices of Treasurys, mortgage-backed securities and other fixed income products.
Fears that the Fed might end QE3 before the end of 2013, initially ignited by the minutes of the Fed's December policy meeting released in early January, have partly kept benchmark yields near 2 percent.
The minutes released on Wednesday of the Fed's Jan. 29-30 meeting intensified those fears with more talk of what could lead to a shift in the bond-buying program.
"A number of participants stated that an ongoing evaluation of the efficacy, costs and risks of asset purchases might well lead the committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred," the minutes said.
But persistent worries about possible steep federal spending cuts and an uncertain election outcome in Italy have fed safety bids and curbed large-scale selling in Treasurys, analysts and traders said.
Moreover, some investors believed 10-year Treasury notes were appealing whenever their yield approached 2.05 percent, analysts said.
Treasurys began the day lower in price but turned around as stock losses deepened.
(Read More: High Yield Munis Still Good for 2013: BlockRock Strategist)
Benchmark 10-year Treasurys were trading 5/32 higher in price to yield 2.010 percent, down 1.8 basis points from late Tuesday, while were 6/32 higher to yield 3.199 percent, down from 3.209 percent late on Tuesday.
Wall Street stocks added to earlier losses after the Fed minutes sparked fears of less stimulus from the central bank. The Standard & Poor's 500 index, which started the day near a five-year peak, closed down more than 1 percent lower.
The Treasurys market showed little impact from data showing groundbreaking on new U.S. homes fell in January, although new permits for construction rose to a 4-1/2-year high. The government also said U.S. producer prices rose in January for the first time in four months.
Traders will receive a heavy calendar of data on Thursday including the consumer price index, weekly jobless claims and existing home sales.
They will also prepare to buy $9 billion worth of 30-year Treasury Inflation Protected Securities.
QE Infinity, Maybe Not
The bond market showed resilience from its initial sell-off on the Fed minutes, but some investors acknowledged yields will ultimately rise once the Fed begins its exit strategy from quantitative easing.
At the end of last year, some traders and analysts spoke of the possibility the Fed would buy bonds indefinitely, a move dubbed QE Infinity, to support the U.S. economy.
The last two sets of FOMC minutes signaled policy-makers have started to look at steps to bring an end to the current era of unprecedented monetary stimulus that lifted the economy out of recession and financial crisis.
"They are beginning to take account for the costs and consequence of their action. That's why the market has turned around," said Richard Schlanger, portfolio manager at Pioneer Investments in Boston.
Still, there are many hurdles the economy must clear before the Fed would end its bond-purchase program, currently at $85 billion a month, Schlanger said, adding that benchmark yields will likely trade around current levels.
The main hurdle remained the jobless rate, which stood at a relatively high 7.9 percent in January. Economists forecast it would take many more months to get unemployment below 6.5 percent, which the Fed has cited as a threshold before it would consider removing policy accommodation.