Prices inch higher after tame core producer prices

US 10-YR
US 30-YR

U.S. Treasury debt prices edged higher in choppy trading on Tuesday after a core inflation measure showed just a tepid rise in prices last month, which suggested the Federal Reserve could take its time raising interest rates.

Yields, which move inversely to prices, were much lower following the release of the stronger-than-expected U.S. producer prices data but edged up from their troughs, indicating a market lacking any strong conviction trade.

German Bund yields hovering near record lows have also weighed on their U.S. counterparts. Benchmark U.S. yields have declined in three of the last four sessions.

U.S. data on Tuesday showed producer prices unexpectedly rose in October, but a broader measure, which excludes food, energy and trade services, remained benign, inching up just 0.1 percent last month.

"The headline was firmer than expected, but the sub-text reveals no inflation pressures and are closer to the traditional way we looked at PPI," said David Ader, head of government bond strategy at CRT Capital in Stamford, Connecticut.

In mid-morning trading, benchmark 10-year U.S. Treasury notes were last up 6/32 in price to yield 2.32 percent from 2.34 percent late Monday. Five-year notes were up 3/32, yielding 1.61 percent.

"Treasurys continue to be attractive versus our trading partners," said David Coard, head of fixed income sales and trading at Williams Capital in New York. "We have backed off from the lows in 10-year yields that we saw a month ago, so people see value here."

Away from the data prints, the head of the Federal Reserve of Minneapolis, Narayana Kocherlakota, will be speaking on monetary policy outlook this afternoon. In addition, the Treasury will auction $40 billion in four-week notes on Tuesday.

U.S. 30-year Treasury bonds, meanwhile, were up 12/32, with a yield of 3.05 percent, from 3.06 percent at the close on Monday.

CRT's Ader said while the United States looks in decent shape compared to the euro zone and Japan, the monetary policies for these countries reflected the fact their economies cannot stand on their own two feet.

"This may help explain why yields remain so low in general and specific to the U.S., reflect the global influence as much if not more than the pure domestic story," said Ader.