Prices for U.S. Treasurys traded near flat on Wednesday, with yields off last week's eight-month highs but still within recent ranges, as looming debt ceiling talks kept investors wary.
While analysts called a $21 billion auction of 10-year notes weak, Treasurys pared gains on the results and saw choppy trading in the New York afternoon.
At 1.863 percent, the high yield for the auction exceeded market expectations, with lower-than-average non-dealer bidding and bid-to-cover.
But analysts said the budget battle in Washington overshadowed the results of the sale, with investors unsure where the debate could go and what direction the market could take.
"It's the debt ceiling. What's the fight going to look like, how much spending cuts are we going to get out of that, if any, and what is it going to mean," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut.
"I think it's going to be a choppy and largely sideways and indecisive time until then," he said.
Benchmark 10-year Treasury notes were trading flat in price, their yield at 1.864 percent. Yields on Friday touched 1.98 percent, the highest since late April.
Yields have generally been easing since that Friday high after minutes from the Federal Reserve's December policy meeting sparked some worries the central bank could pare back its asset purchases sooner than expected if the economy improves enough. (Read More: Rising Bond Yields. This Is Just the Start)
Also boosting yields last week, Republicans and Democrats reached a deal to soften an austerity package scheduled to kick in at the beginning of the year that might have pushed the economy back into recession.
But the respite could be only temporary as the compromise only postponed major across-the-board spending cuts.
In addition, the Treasury hit the $16.4 trillion limit on the amount of borrowing that is authorized by Congress on Dec. 31, and the United States could default on its debt within weeks unless Congress raises the limit.
The last time policymakers squabbled over the debt ceiling, in 2011, the United States' AAA credit rating was cut by Standard & Poor's.
With negative outlooks from all three major rating agencies, investors are worried that the U.S. credit rating could get dented further if no solution is reached.
The Treasury has a $13 billion auction of 30-year bonds on Thursday. The sale of $32 billion of three-year notes on Tuesday drew strong non-dealer bidding. The high yield was 0.385 percent, in line with expectations.
Thirty-year Treasury bonds were trading 2/32 lower in price, their yield at 3.069 percent. Thirty-year bond yields on Friday rose to 3.18 percent, the highest since late April, and some analysts were calling for a further pullback in the yield.
Separately, U.S. overnight lending rates continued their 2013 downward trajectory. That coincides with the end of the Fed's "Operation Twist" stimulus program, under which the central bank was selling shorter-dated debt and using the proceeds to buy longer-dated Treasurys. (Read More: Central Bank Buying Runs Bond Vigilantes Out of Town)
The interest rate on overnight repurchase agreements were last quoted at 0.17 percent, the lowest since July 19 and down from 0.18 percent on Tuesday. The rates have been falling steadily since touching a recent high of 0.4 percent on Dec. 31.
The Fed replaced "Operation Twist," which expired at the end of December, with an open-ended program under which it is buying $45 billion per month of longer-dated Treasurys. As part of the new program, the Fed on Wednesday bought $1.55 billion of Treasurys maturing 2036 through 2042.