During her testimony on Capitol Hill, a dovish Fed Chair Yellen said she expects gradual shrinking of its $4.5 trillion bond portfolio.
"Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance," Yellen told Congress.
The neutral level is the point where the Fed's benchmark rate is neither accelerating nor restraining the economy. The current target for the funds rate is 1 percent to 1.25 percent, while inflation is around 1.4 percent.
The Treasury Department auctioned $20 billion in 10-year notes at a high yield of 2.325 percent.
The bid-to-cover ratio, an indicator of demand, was 2.45. Indirect bidders, which include major central banks, were awarded 64.8 percent. Direct bidders, which includes domestic money managers, bought 5.7 percent.
Treasury yields pared losses following the sale.
"The stats were slightly soft with the dealer takedown a bit above average, though we'd argue this was mostly the result of the move after Yellen," wrote BMO Interest Rate Strategist Aaron Kohli.
The Fed is set to release its assessment of the current economic environment in its Beige Book this afternoon.
10-year intraday chart
The Dow Jones industrial average hit a new intraday record as U.S. equities surged over 100 points higher as Wall Street parsed through Yellen's prepared remarks on interest rates and quantitative easing.
Meanwhile, the Bank of Canada will announce its latest interest rate decision. It is largely expected to follow the Fed's example and begin to tighten its policy. This will be the first time it has taken such measures in seven years.
Investors will also be awaiting the latest on Donald Trump Jr.'s involvement in Russian meddling in the 2016 presidential election following the release of his emails late Tuesday.
Total mortgage application volume fell 7.4 percent last week from the previous week, according to the Mortgage Bankers Association's seasonally adjusted report. Volume was 36 percent lower than a year ago as higher interest rates took a heavy toll on the demand for home loans.
In oil markets, OPEC's production rose again in June, driven by increases in Libya and Nigeria and as top exporter Saudi Arabia reported it pumped more than it agreed to last year. Earlier gains eased after government data showed U.S. crude stockpiles plunged more than expected last week as imports declined and drillers continued to pump more, according to Reuters.
Brent crude traded at around $47.79 a barrel Tuesday, up 0.57 percent, while U.S. crude was around $45.53 a barrel, up 1.09 percent.
Earlier today WTI crude neared a session high of $46.12, its highest since July 6.
— CNBC's Gina Francolla contributed to this report.