U.S. government bond prices inched up Tuesday, a day after Standard & Poor's released a warning that it could downgrade U.S. debt in the next two years.
The price of the 10-year Treasury note rose 12.5 cents per $100 invested in late trading. Its yield, which moves in the opposite direction, slipped to 3.37 percent from 3.38 percent late Monday.
S&P said Monday there was a one-in-three chance it could cut its ratings on U.S. debt in the next two years. Traders initially dumped bonds on the report, but prices later stabilized.
"It was knee-jerk reaction. I took the report with a grain of salt," said Kim Rupert, managing director of global fixed income analysis at Action Economics.
Some analysts said the report was overreaching, while others said it could help push Washington to agree on a deficit-reduction plan. That would push bond prices higher over the long term.
A slower economy could also prompt the Federal Reserve to postpone any increases in interest rates, Goldman Sachs economists said in a note to clients. That would be another positive for bonds.
In other trading, the price of the 30-year bond rose 50 cents per $100 invested, while its yield fell to 4.43 percent from 4.45 percent late Monday. The yield on the two-year note edged down to 0.65 percent from 0.66 percent.
The yield on the three-month T-bill was unchanged at 0.05 percent. Its discount was also 0.05 percent.