TREASURIES-U.S. bond prices fall, but focus stays on Syria
* Treasury to sell $35 billion 5-year notes at 1 p.m. (1700 GMT
* Focus on Syria as UN investigates whether government forces used chemical weapons
NEW YORK, Aug 28 (Reuters) - Prices of U.S. Treasuries fell on Wednesday, unwinding some of the recent flight-to-safety gains inspired by the potential for a military strike against Syria in response to an alleged chemical weapons attack on that country's civilians.
While the previous day's flight-to-safety gains were partially erased, the market seemed likely to remain focused on prospects for an action against Syria aimed at limiting the Syrian government's ability to use chemical weapons.
"The trade is all about Syria and when do the missiles start hitting," said Thomas di Galoma, a head of bond trading at ED&F Man Capital Markets. "When that happens the bond market will start to discount the news and start selling off again."
Prices of the benchmark 10-year Treasury note fell 11/32 to 97-24/32, their yields rising to 2.76 percent from 2.71 percent late on Tuesday.
In terms of technical levels, "the 2.70 percent yield area has held as a top for the 2 1/2 percent 10-year note since falling below there on August 13, while the 2.75 percent area is offering support currently ahead of the 2.80 percent yield area that had been resistance," said John Canavan, fixed-income analyst at Stone & McCarthy Research Associates.
"Players are still keeping a wary eye on the situation in Syria," he added.
Apart from geopolitical risk, the Treasury's $35 billion five-year note auction at 1 p.m. (1700 GMT) is the main feature on the bond market's landscape.
"The note may not be a new issue if it stops between 1.50-1.624 percent; instead it will be a re-opening of the 1.50 percent 8/31/18, an original maturity seven-year note," said Cantor Fitzgerald Treasury strategist Justin Lederer.
In the Treasury market, sellers "materialized" overnight and the selling continued in New York. Set-ups for the auction could be cautious due to "headline risk" related to the "developing conflict in the Middle East," he said.