NEW YORK Prices for Treasuries rose on Wednesday after a week of losses, as poor data on manufacturing pointed to lingering weakness in the economy and price pressures remained subdued.
The New York Fed manufacturing index unexpectedly shrank to minus 1.43 percent in May from 3.05 percent in April. Economists in a Reuters poll had seen a rise to 4.
In addition, the U.S. Labor Department said on Wednesday its seasonally adjusted producer price index fell 0.7 percent last month, the biggest decline since February 2010.
That combination, analysts said, suggested that the Federal Reserve would likely continue its massive easing program for months yet, if not longer.
"So we've got slower growth, sliding inflation and central bank stimulus," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
"Today's data add to expectations that there's not going to be any slowing in central bank stimulus anytime soon," she added.
The Fed is now buying $85 billion per month in Treasuries and mortgage-backed securities in a bid to boost the U.S. economy and bring down stubborn unemployment.
Prices for 10-year notes rose 12/32 to yield 1.942 percent, from 1.9766 percent late on Tuesday.
Prices for 30-year bonds advanced 29/32 to yield 3.152 percent, from 3.1939 percent late on Tuesday.
Investors are trying to gauge when the Fed might slow or even stop its easing program.
While some labor market data have been encouraging recently, there have remained enough disappointing data - such as Wednesday's manufacturing figures - to underscore the continued potential for weakness in the world's biggest economy.
The unemployment rate also remains at 7.5 percent, a full percentage point above the 6.5 percent that Fed policymakers want to see.
And with inflation also well below target - the Fed wants to see that figure around 2 percent - there are few concerns that price pressures will eat into economic gains.
"Price data has been of particular focus given the Fed's ongoing easing program, with the weaker PPI data adding to the current narrative of softening core inflation momentum," said Gennadiy Goldberg, a U.S. strategist with TD Securities in New York.
Indeed, the economy is still struggling, with analysts forecasting around 2 percent expansion this year - hardly the robust growth that once made the U.S. economy a global engine.
Nevertheless, that's still better than what the euro zone is facing: data on Wednesday showed the monetary union's economy has contracted for six straight quarters.
"Today's GDP figures once again show that the euro zone remains the weakest link in the world economy," wrote Peter Vanden Houte of ING Bank in a note to clients.
"The growing negative output gap is a recipe for continuing monetary stimulus," he added.
(Editing by James Dalgleish)