Treasurys wobbled Wednesday as encouraging economic news and fears about Europe held prices in a narrow range.
Foreign demand for Treasurys and U.S. corporate debt remained strong in September as the European debt crisis threatened to spin out of control, the Treasury Department said.
The price of the 10-year Treasury note rose 31 cents for every $100 invested, pushing its yield down to 2.01 percent at 4 p.m. Eastern time from 2.05 percent late Tuesday. The yield rose as high as 2.05 percent earlier Wednesday afternoon.
Americans paid less for gas, cars and computers in October, the government said early Wednesday. The Consumer Price Index decreased for the first time since June, a sign that prices are holding steady despite extremely low interest rates engineered by the Federal Reserve.
Low rates often cause prices to rise by encouraging more lending to consumers and businesses. Sellers, in turn, can charge more without pricing too many people out of the market.
High inflation would hurt bondholders because they collect their investment returns over time. If prices rise, those future returns have less buying power. When prices are stable, the future income holds more of its value.
Low inflation also gives the Federal Reserve leeway to consider buying more bonds as it works to revive the struggling economy. Such a move would likely cause investors to buy Treasurys, pushing their prices higher before the market's biggest buyer starts bidding.
In a separate report the Fed said that U.S. industrial output rose in October at the fastest pace in three months. Factory production increased solidly, a signal that manufacturers are recovering after slowing down this spring.
Meanwhile, foreign investors bought more Treasurys and corporate bonds in September, despite economic uncertainty and a downgrade of the nation's credit rating by Standard & Poor's in August. The Treasury Department said total foreign holdings of Treasurys increased 1.9 percent in the month after the S&P downgrade. It was the second straight monthly increase. China, the largest foreign owner of Treasurys, increased its holdings by 1 percent.
Net purchases of long-term securities, a category that includes Treasurys and corporate bonds, increased by $68.6 billion, the biggest gain in almost a year.
The results highlight the crucial role of Treasurys as ultra-safe investments that grow more attractive when other assets appear shaky.
"Despite the anemic economic recovery in the U.S. and its various political failings _ the U.S. is still the prettiest pig at the fair," said Chris Christopher, senior principal economist with IHS Global Insight. "Given the current financial and economic woes in Europe, the U.S. is beginning to look even prettier," he added.
The price of the 30-year Treasury bond rose 72 cents per $100 invested, pushing its yield down to 3.05 percent from 3.08 percent late Tuesday.
Bond yields fall as their prices rise. That means investors are willing to accept an even tinier return in exchange for holding an asset seen as safe.
The yield on the two-year Treasury note rose to 0.26 percent from 0.23 percent.
The yield on the three-month Treasury bill was unchanged at 0.01 percent. Its discount wasn't available.
Daniel Wagner can be reached at www.twitter.com/wagnerreports.