US Treasury prices climbed on Friday after a report showed the US economy grew at a slower clip than analysts had forecast in the fourth quarter.
In a market wary of upside surprises from economic data, traders were relieved to learn that US gross domestic product expanded at a 4 percent rate in the fourth quarter after the third quarter's blistering 8.2 percent pace.
Wall Street forecasts had pegged growth closer to 5 percent, with one investment bank predicting 6 percent.
"The bond market took the GDP number positively," said Gary Thayer, chief economist at A.G. Edwards & Sons in St. Louis. "It had expected stronger growth and some people may now be reminded that the Fed will not be quick to raise rates."
Bonds pulled back a bit after another report showed manufacturing output in the Chicago area grew more briskly than anticipated, but were back at their highs for the session by the afternoon.
The National Association of Purchasing Management-Chicago business barometer rose to 65.9 in January from 61.2 in December, its highest level since July 1994. Economists had forecast the index at 62.0. A reading above 50 indicates expansion.
In a boon to Treasuries, the survey's employment component slipped to 48.3 from 49.6 in December, suggesting a still-sluggish labor market. The benchmark 10-year note was up 12/32 in price, taking its yield to 4.14 percent from 4.19 percent late on Thursday.
Just last week, yields had been down at three-month lows of 3.92 percent. But that was before the Federal Reserve tempered its commitment to low rates by altering the wording of its statement.
Instead of its earlier promise to keep its benchmark federal funds rate at 1 percent for "a considerable period," the central bank said only that it could be "patient in removing policy accommodation." Two-year note yields, those most sensitive to market thinking on interest rates, were trading at 1.85 percent.
The 30-year bond was 19/32 higher, leaving yields at 4.96 percent from 5.00 percent. Five-year notes were last at 3.15 percent, versus 3.21 percent.
Bonds largely shrugged off a jump in January consumer sentiment reported by the University of Michigan.
The gauge of consumer confidence rose to a final reading of 103.8 in January from December's final 92.6, market sources said. The reading was largely in line with forecasts.
On the margins, the market was supported by the prospect that foreign central banks' appetite for US debt remains insatiable.
Japan spent a record 7.1545 trillion yen in currency intervention in January - equivalent to $67.56 billion at Friday's rate - to stem the yen's rise against the dollar, Finance Ministry data showed. Much of that money is thought to end up in Treasuries.
Asian central banks, particularly the Bank of Japan, have propped up the bond market as massive buyers of Treasuries in the past year in their fight to slow export-damaging gains in their currencies.
Such buying has helped hold down Treasury yields, compensating for softer demand for US government bonds from domestic investors. The trend continued in the latest week, with holdings of US debt by foreign central banks leaping again to touch a record high.
While the gains were mostly concentrated in agency debt, solid offshore demand for new two-year notes on Thursday comforted US bond investors, suggesting another uptick in foreign Treasury holdings in the coming week.