U.S. Treasury debt pared prices losses on Wednesday after the Federal Reserve reiterated it will continue its current program of asset purchases until the labor market improves "substantially."
Benchmark 10-year Treasury notes were trading 1/32 lower in price with the yield little changed from late Tuesday at 2.001 percent. Benchmark notes had been trading 8/32 lower in price just prior to the release of the Fed's latest policy statement.
The 30-year bond last traded 10/32 lower in price to yield 3.203 percent.
The Treasury Department auctioned $29 billion of seven-year notes at a high yield of 1.416 percent. The bid-to-cover ratio, an indicator of demand, was 2.60. That compared to a recent 10-auction average of 2.71.
Prices for U.S. Treasurys traded lower earlier in the session after data showed the U.S. economy unexpectedly shrank at the end of last year, with investors awaiting any hints about the Federal Reserve's asset-buying program as the central bank concludes a two-day meeting.
"We have a slowing in government spending associated with the fiscal situation as well as some drawdown in military activity,'' said Terry Sheehan, economic analyst with Stone & McCarthy Research Associates in Princeton, New Jersey. "This report doesn't have immediate implications for Fed policy. They will be unhappy with it, but it's one quarter's number."
While the figure could see revisions in the months ahead, prospects for the new few quarters look "tricky,'' said Rob Carnell, an economist with ING Bank.
"Recent Treasury yield increases and sell-offs in the back month Fed funds futures look premature,'' he said. "We will find better levels to lock in low rates in anticipation of higher yields in the second half of the year."
Treasurys jumped after the data, but soon gave up those gains as investors turned toward Wednesday's other major event: the close of the Federal Reserve's two-day policy meeting.
Investors will scour the bank's statement for any hints of unease with its asset-buying program.
Suggestions along those lines in the December meeting minutes, released on Jan. 3, jump-started a sell-off that took yields up out of their range of recent months.
Investors are also awaiting nonfarm payrolls data on Friday. The Fed wants the unemployment rate to drop closer to 6.5 percent from the current 7.8 percent.