Bonds sag on upbeat data, hopes on Greece deal

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U.S. Treasury yields held near session highs on Wednesday as stronger-than-expected data on domestic factory and construction spending supported the view the U.S. economy is back on track following weakness in the first quarter.

The Institute for Supply Management said its index of national manufacturing activity rose to 53.5 in June, the highest level since January.

Read MoreGreek crisis:Markets up on report of Tspiras climbdown

The government said construction spending rose 0.8 percent in May to its highest level in just over 6-1/2-years.

The yield on benchmark 10-year Treasury notes rose about 7 basis points to 2.42 percent, in reach of its 2.44 percent session high. The yield on the 30-year bond stood at 3.21 percent, slightly off a session high of 3.22 percent.

Treasury yields gained momentum earlier on rising hopes of a Greek bailout deal, following a leaked letter from the Greek prime minister to its international lenders.

The letter, first published by the Financial Times newspaper, suggested that Greek Prime Minister Alexis Tsipras would finally accept all the demands proposed by its creditors over the weekend.

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Greek bonds continued to rise on Wednesday, with 10-year notes yielding over 15 percent, after Tsipras accepted lenders' conditions in a two-page letter originally sent to the heads of the European Commission. In the letter, he requested only minor tweaks to their suggestions on pensions and tax reforms.

The letter follows months of wrangling that culminated on Monday with Greece defaulting on a 1.5 billion-euro ($1.7 billion) repayment to the International Monetary Fund.

Safe-haven bonds in the U.S. and Germany have been boosted by growing concerns that Greece is moving closer to a "disorderly" exit from the euro zone.

Read MoreWall Street eyes sharply higher open on Greece hopes

Wednesday kicked off two days of important economic data that culminate with the most important report of all: The official non-farm payrolls report for June on Thursday—out early because of the Independence Day holiday. Economists expect a total of 230,000 nonfarm payrolls in the government's report on Thursday.

Traders had been eyeing this week's data, especially jobs, to get more clues on the state of the economy and therefore the Fed's potential timing for a rate hike.

—Reuters contributed to this report.