Worries that Banco Espirito Santo's problems may kindle another banking crisis in Europe receded a tad after the Portuguese bank released a statement that said it had adequate capital to protect against any losses. The bank has been under scrutiny due to its link to a web of companies in the Espirito Santo business empire.
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Meanwhile, Israeli air strikes continued for a fourth day on the Gaza Strip, stoking worries about tension spreading to the rest of the region.
These overseas developments have overshadowed upbeat news on the U.S. economy, analysts and traders said.
Despite last week's strong June payrolls reading, the 10-year yield has declined nearly 13 basis points this week, while two-yield has retreated from a 10-month high set on Tuesday.
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While bidding on this week's $61 billion in fixed-rate government debt was relatively weak, traders say appetite for Treasurys should remain solid as they are yielding more than their European and Japanese counterparts.
"There is demand for long-dated U.S. paper because there's not so much high-quality supply out there,'' said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York.
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—By Reuters. CNBC.com contributed to this report.