Treasurys prices stayed low on Tuesday after the U.S. government sold new two-year notes in an uneventful auction, the first sale in $99 billion of supply this week.
Prices slipped in overnight trading in concert with weaker German government debt and were lower most of the day, though traders and analysts said trading volumes were light, with few major economic releases this week.
Demand for the two-year notes was average.
The next focus for the market will be the Treasury's sale of $35 billion in five-year notes on Wednesday. Five-year notes have been among the most volatile in recent months as they are very sensitive to Federal Reserve interest rate policy.
The recent back-up in yields, however, may help demand as Fed Chairman Ben Bernanke has stressed in recent speeches that the U.S. central bank will keep rates near zero for a long time to come, even if it starts paring back its bond purchases.
"It's a short enough maturity that for a good part of its life the Fed is likely to be near zero, til you get to the back end of it," said Michael Cloherty, head of U.S. rates strategy at RBC Capital Markets in New York. "That's less help to sevens."
The Treasury will sell an additional $29 billion in seven-year notes on Thursday, the final sale in this week's coupon-bearing supply.
Five-year notes fell 3/32 in price to yield 1.32 percent. The yields have fallen from a two-year high of 1.63 percent on July 8 but are up from around 0.65 percent at the beginning of May. Traders expect the new notes to price at around 1.35 percent, according to trading in the "when issued" market.
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Benchmark 10-year notes were last down 10/32 in price to yield 2.52 percent, up from 2.48 percent late on Monday, but down from their two-year highs of 2.76 percent on July 8.
Yields have slipped this month as Bernanke and other central bank officials have underscored that any plans to slow an $85 billion-per-month asset purchase program depend on the economic data about of the world's biggest economy.
Most economists continue to expect that the Fed will begin to reduce its purchases of bond in September, according to a Reuters poll, even though some market participants pushed back their expectations to later in the year.
Next week's July U.S. payrolls report will be the next major economic catalyst that is likely to give signals about the timing of a Fed pullback. It is due for release on Aug. 2.
Policymakers want to see the unemployment rate closer to 6.5 percent than its current 7.6 percent.
More direction could also come after the Federal Open Market Committee meets on July 30 and 31. A statement will be released on the second day.
"The FOMC's statement needs to confirm the message Bernanke has been repeating for the last several weeks - gradualism, caution, slow to raise rates in 2015," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.
"Any equivocation on those points will send rates higher, possibly to 2.65 percent again as the Fed's communication strategy would be laid bare as nearly a random series of events," he added.
Some strategists see the meeting as unlikely to contain any new information, however, as there has been little data since Bernanke's testimony to congressional panels last week that is likely to have changed the Fed's view.
"I think the Fed has given everyone a decent sense of tapering. It's a little bit early for them to be too definitive beyond what they have told us already," said Cloherty.
The Fed bought $3.69 billion of Treasurys maturing in 2019 and 2020 on Tuesday as part of its ongoing purchase program. It will buy between $1.25 billion and $1.75 billion in bonds due from 2036 to 2043 on Wednesday.