Treasury prices reversed course and ended modestly higher, pushing yields lower, after a Fed official's comments focused on speed bumps for the economy.

Treasurys had been under pressure earlier amid improving investor appetite for oil, stocks and other assets perceived as more sensitive to economic growth.

Yields on 10yr notes fell 3bps to 3.66%. They had risen as high as 3.73% earlier as prices slid.  Yields on 2yr debt declined 4bps to 0.79%.

 
Narayana Kocherlakota, the new president of the Federal Reserve Bank of Minneapolis, said the U.S. economic recovery is likely to be slow and the unemployment rate is likely to stay high. Separately, Kansas City Fed President Thomas Hoenig said U.S. fiscal policy is on an "unsustainable course" and the government must adjust its spending and tax programs or risk a crisis.

 
Some analysts also said government bonds, often used as a safe haven, may have gained a little support following news of a bomb exploding outside an Athens office of J.P. Morgan & Chase Co.

Treasurys held to gains after a report showed U.S. homebuilders were slightly more optimistic in Feb. The NAHB/Wells Fargo housing market index rose 2pts to 17 in Feb. after falling in Dec. and Jan. The increase to the highest level since Nov. was in line with expectations of economists.

 
Weighing on Treasurys earlier, some investors seemed comforted as European finance ministers demanded fresh budget cuts from Greece if a review of the country's debt-slashing measures doesn't meet approval next month.

Earlier, the Federal Reserve Bank of NY said factory activity in the Empire State region expanded at a faster pace in February.

Reports on housing starts and industrial production are expected to improve, as is data released Thursday on manufacturing in the Philadelphia Fed's region.

Treasurys had extended early morning losses after the Treasury Dept. report showed total holdings of U.S. equities, notes and bonds increased by a net $63.3B in December, down from $126.4B in the previous month. Official international demand for Treasurys increased by $22B in Dec., compared with a gain of $31.2B in November. Private purchases of Treasurys rose by $48B after purchases of $86.7B in the previous month.

 
The report also indicated a shift from short-term bills into notes and bonds, analysts said.
Still, the December Treasury International Capital, or TIC, report, showed buying that was above monthly averages, according to strategists at CRT Capital Group.