The Commerce Department said housing starts fell 10.6 percent and the Federal Reserve said US industrial output was flat.

Meanwhile, the portion of the nation's industrial capacity used in that output edged down to 76.9 percent from 77 percent in March, pointing away from inflation.

Benchmark 10-year Treasury notes were up 6/32 in price after the data, their yields falling to 3.12 percent.

‘The housing report added to the market's sense that the economy is in a slower growth mode,’ said Cary Leahey, managing director and senior economist at Decision Economics.

While the weakness in industrial output, including the first drop in factory production in 10 months, was more the exception to the recent rule, the two reports together were less than promising, economists said.

‘Even allowing for the (Japanese) earthquake-related disruption to motor vehicle production, April's production figures weren't great,’ said Paul Ashworth, chief US economist at Capital Economics in Toronto.

‘Added to the earlier news that housing starts actually fell in April, this is further evidence that the recovery remains pretty modest,’ he said.

Restrained economic growth would likely keep the Fed's accommodative monetary policy in place for a longer time.

‘Whatever rebound is unfolding in the second quarter will fall short of 3 percent growth and if growth falls short of 3 percent, the Fed will be disappointed and will postpone taking even baby steps toward tightening monetary policy,’ he said.

As long as inflation stays subdued, accommodative monetary policy is supportive for Treasuries, traders said.

Another day of losses on Wall Street and jitters related to Greece's debt situation also supported the bid for safe-haven US debt.

Euro zone finance ministers hinted they might ask Greece's private creditors to extend the maturities on their bonds, a move that would give Athens more time to pay down its debt.

The lowest yields in months drew more corporate issuers to market. After $9.1 bln in high-grade corporate deals hit the market on Monday, corporate issuance heated up again with a dozen deals already in Tuesday's pipeline, half of them of benchmark size, according to IFR.

The 10-year yield eased to 3.12 percent, below the important 3.14 percent technical resistance level set in mid-March after the earthquake and tsunami in Japan.

Corresponding resistance levels are 0.50 percent for two-year yields and 1.80 percent for five-year yields, said William O'Donnell, head of US Treasury Strategy at RBS Securities in Stamford, Connecticut.

‘We have held these levels in the last nine trading sessions,’ he said. Support for 10-year yields lies near 3.40 percent, he added.