U.S. Treasurys yields approached two-year highs on Tuesday after data suggested Europe's struggling economy may have turned the corner and a resilient U.S. consumer sector would generate faster growth in the second half of the year.
Mildly encouraging data on domestic retail sales in July supported the notion the Federal Reserve might dial back its $85 billion monthly bond purchase program, its third round of quantitative easing, also known as QE3.
A top Fed official said he would not rule out the possibility the central bank might reduce QE3 in September, but such a move depends on whether evidence shows the economic recovery would stay on track with less monetary stimulus.
"People were placing a higher probability of tapering in September," Jason Brady, head of fixed income at Thornburg Investment Management in Santa Fe, New Mexico, said of the market selloff.
On above-average volume, benchmark 10-year Treasury notes fell 27/32 in price to yield 2.721 percent, up from 10 basis points on the day. The 10-year yield was just over 3 basis points from a two-year high of 2.755 percent on July 8.
Thirty-year bonds shed 1-10/32 in price to yield 3.758 percent, up 7.5 basis points from late Monday. The 30-year yield traded at a two-year high of 3.793 percent on July 10.
"People were expecting a grind lower in yields after the refunding supply and they didn't get it," Brady said.
A widely-followed survey released earlier from JPMorgan Securities showed investors raised their stakes in longer-dated Treasurys in hopes of lower yields following last week's $72 billion in coupon-bearing supply.