NEW YORK: US Treasury debt prices edged higher on Wednesday after a week of losses as manufacturing data pointed to lingering weakness in the economy and price pressures remained subdued, but a continued rally in riskier assets kept gains modest.
US industrial production fell more than expected in April, down 0.5 percent. Regional data suggested more contraction could be coming, too, with the New York Fed's "Empire State" general business conditions index down to minus 1.43 in May, despite expectations for growth from April.
In addition, the US Labor Department said on Wednesday its seasonally adjusted producer price index fell 0.7 percent last month, the biggest decline since February 2010.
That combination of economic weakness and slow inflation, analysts said, suggested that the Federal Reserve could continue its massive easing program for months, if not longer.
"So we've got slower growth, sliding inflation and central bank stimulus," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
"Today's data add to expectations that there's not going to be any slowing in central bank stimulus anytime soon," she said.
But the expectations for continued Fed easing drew money from Treasuries and into riskier assets as the session wore on.
Key US stock indexes have rallied this year, posting a series of record highs as investors look for more yield than what safe havens such as US debt are now offering.
"How many more all-time highs do you have to break before people start getting out of riskless assets and start putting the money to work elsewhere," said Gennadiy Goldberg, a US strategist with TD Securities in New York.
"It takes awhile for consumers to switch around their 401k funds, things like that," he added, noting that those investors could now be reallocating their assets into stocks and away from Treasuries in the face of Fed easing.
The Fed is now buying $85 billion per month in Treasuries and mortgage-backed securities in a bid to boost the US economy and bring down stubborn unemployment.
Prices for 10-year notes rose 5/32 to yield 1.966 percent, from 1.977 percent late on Tuesday.
Prices for 30-year bonds advanced 7/32 to yield 3.189 percent, from 3.194 percent late on Tuesday.
Investors are trying to gauge when the Fed might slow or even stop its easing program.
While some labor market data have been encouraging recently, there have remained enough disappointing data - such as Wednesday's factory figures - to underscore the continued potential for weakness in the world's biggest economy.
"Today's figures remain consistent with the soft patch story that is likely to prevent the Federal Reserve from scaling back their QE efforts before" the fourth quarter of this year, said James Knightley of ING Bank in a note to clients.
The unemployment rate also remains at 7.5 percent, a full percentage point above the 6.5 percent that Fed policymakers want to see.
And with inflation also well below target - the Fed wants to see that figure around 2 percent - there are few concerns that price pressures will eat into economic gains.
"Over the next year at least, inflation is more likely to be too low rather than too high," said Paul Dales, senior US economist with Capital Economics in Toronto.
Indeed, the economy is still struggling, with analysts forecasting around 2 percent expansion this year - hardly the robust growth that once made the US economy a global engine.
Nevertheless, that's still better than what the euro zone is facing: data on Wednesday showed the monetary union's economy has contracted for six straight quarters.
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