US Treasuries rebounded on Wednesday as investors set aside strong US housing numbers and focused instead on the outlook for low interest rates.
"People are not making any big bets going one way or the other, but particularly after the last (weaker-than-expected) employment report there's no real impetus to set up shorts," said Gemma Wright, director and market strategist at Barclays Capital.
"The Federal Reserve does not seem to be in any hurry to raise interest rates and very likely there will be no change in their policy statement next week" when Fed policy-makers are scheduled to meet, she added.
Housing starts rose to an annual 2.088 million units in December from 2.054 million in November, surprising analysts who had looked for a dip to 1.960 million.
Traditionally, investors have shied away from government securities in the face of such displays of strength. But the Fed's pledge to keep rates low for the time being helped put a floor under bond prices.
The Fed is expected to maintain its commitment to an accommodative policy at next week's board meeting, which kept yields on the two-year note comfortably below 2.00 percent.
Treasuries did get a short-lived setback from Treasury Secretary John Snow's assertion that the Labour Department's December employment report may have understated jobs growth.
That report, released almost two weeks ago, said non-farm payrolls added just 1,000 jobs in December - contrary to economists' forecasts of a rise of 130,000 or more - while the unemployment rate fell to 5.7 percent.
Analysts said the outlook for low interest rates has fostered a market resiliency that has thwarted sellers.
"The bottom line is that people have not got any satisfaction from the couple of attempts to knock the market down," said Anthony Karydakis, senior financial economist at Banc One Capital Markets. "Instead, the market has shown an impressive ability to bounce back every time it has gone down; no one is interested in selling, so the natural tendency appears to be toward higher (price) levels."
At 5 pm, the benchmark 10-year note was up 10/32 to 101-26/32, yielding 4.02 percent. Two-year notes were up 1/32 to 100-14/32, yielding 1.64 percent.
Prices got early steam from hopes for intervention-related demand. The dollar's fall against the euro and the yen, in particular, stoked speculation that certain foreign central banks could add to their already large reserves of US debt. The Bank of Japan has been a major buyer of dollars this month and much of that is funnelled into Treasuries.
While blue-chip stocks rose, the technology heavy Nasdaq composite index slipped.
Five-year notes rose 5/32 to 101-4/32, yielding 3.01 percent, while the 30-year bond climbed 10/32 to yield 4.91 percent.