Fears that the US will face another credit rating downgrade also eased after Fitch Ratings affirmed the US as the top AAA, with a stable outlook.

Investors returned to bonds from stocks as data showed the German economy slowed between April and June to its weakest quarterly growth rate since 2009, fueling concerns about an European economy already weakened by a fiscal crisis.

"The German GDP was weak and there were also concerns French GDP forecasts might get downgraded as well," said Jason Rogan, director of US Treasury trading at Guggenheim Capital Markets in New York.

Bonds pared price gains after data showed US industrial output rose in July at its fastest pace in seven months.

That data was released at the same time as Fitch affirmed the US rating.

"The Fitch Rating was welcome, its another thing we don't have to worry about, but I don't think it was market moving," said Rogan. "It's the US economic data today that has been pretty strong."

Benchmark 10-year notes were last up 12/32 in price to yield 2.28 percent, down from 2.31 percent late on Monday. The notes had traded as low as 2.26 percent before the industrial output data.

Thirty-year bonds were last up 30/32 in price to yield 3.74 percent, down from 3.77 percent late on Monday.

Treasuries were earlier little changed after US housing starts fell less than expected in July and US import prices increased in July due to higher fuel, food and industrial materials costs.

COPYRIGHT REUTERS, 2011