U.S. Treasurys prices rose on Wednesday due to strong investor demand at a $21 billion auction of 10-year notes, part of this week's $65 billion supply of coupon-bearing government debt.
Bond prices earlier rebounded from Tuesday's losses as dealers bought Treasurys to exit hedges linked to Verizon's record-setting corporate bond deal they underwrote. This interest rate hedge buying faded after the Verizon deal priced.
The market was also supported by the Federal Reserve buying $1.50 billion in Treasurys that mature in 2038 to 2043, which was part of its ongoing purchase program, known as QE3.
The 10-year note auction was "incredibly strong at a cheap level. There was fairly aggressive bidding," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York.
The latest 10-year supply, which was added to an issue originally sold in August, cleared at a yield of 2.946 percent, which was the highest level since June 2011. The latest 10-year auction yield was nearly 33 basis points above the level set last month.
"The 10-year note auction was good," said Peter Boockvar of The Lindsey Group in a note. Apart from Syria, the next FOMC meeting is in focus, he said.
"We will likely get a taper but only $10-15 billion," Boockvar said. The sharp increase in the interest rates over the past few month show that the Fed move is already priced in and "the good auction result today reflects that," he said.