Bond prices rallied on Wednesday after the U.S. government's auction of five-year Treasury notes, the second of three debt auctions this week.
The Treasury Department auctioned $35 billion in five-year notes at a high yield of 1.513 percent, the lowest rate on the maturity since November. The bid-to-cover ratio, an indicator of demand, was 2.73, compared to a recent average of 2.65.
Prices on 30-year Treasury bonds rose 1 8/32 in price to yield 3.30, from 3.29 percent late Tuesday. U.S. 30-year yields hit a low of 3.311 percent, the lowest since May 15.
Benchmark 10-year U.S. Treasury notes were up 21/32 in price to yield 2.45 percent, from 2.52 percent on Tuesday. Yields touched a low of 2.466 percent, their weakest level since July 22 last year, undermined by falls in the German bond market following weak data and more month-end buying from institutional investors.
German 10-year Bund yields were down on Wednesday at 1.337 percent. Yields fell after an unexpected increase in German unemployment and a deceleration in the euro zone money supply. The data reinforced expectations that the European Central Bank will introduce further stimulus at next month's meeting.
The rally in Bunds spilled over to U.S. Treasuries, which saw 10-year note yields tumble to their lowest since early July. U.S. 30-year bond yields also fell, to near 12-month lows.
Buying by institutional investors for month-end extensions has also boosted the market, especially as there were new U.S. 10-year note and 30-year bond issues this month.
"The month-end extensions are part of the Treasury rally and the word is it's larger than usual," said Jeffrey Young, interest rate strategist at Nomura Securities in New York. According to traders, the Barclays' Treasury index is estimated to extend out 0.125 years, which is the highest since March 2011.
One fixed-income analyst said the normal extension is between 0.05-0.08 years.
The German data cemented expectations of more easing measures for the euro zone. ECB Executive Board member Yves Mersch said as much on Wednesday. He said an ECB meeting next week could yield a combination of policies to tackle low inflation and low credit growth, but the timing of the implementation could vary.
—By Reuters with CNBC