U.S. Treasury prices erased earlier losses on Tuesday, but gains were capped by optimism about the U.S. economy, with the Federal Reserve expected to continue reducing its bond purchases and investors bracing for a strong jobs report later this week.
With the world's largest economy seemingly on a stable recovery path, the Fed, which begins its two-day meeting on Tuesday, is expected to carry on tapering its asset buying, a negative scenario for Treasurys. The Fed is also unlikely to alter its forward guidance on interest rates.
Yields on U.S. 30-year bonds and benchmark 10-year notes hit roughly one-week highs, also helped by the market's diminishing focus on geopolitical tensions between Ukraine and Russia. The United States imposed additional sanctions on Russia on Monday, which some thought was too slight and would have little impact.
Volume was generally light on Tuesday with Japanese markets closed due to a public holiday. Analysts said Japanese investors, which are huge market participants, tend to buy Treasuries on downticks.
David Thielke, interest rate strategist at Nomura Securities in New York, said the sell-off in Treasuries was a combination of several factors.
"We haven't seen any major healdines on the tensions in Ukraine and nothing has really changed," said Thielke. "We saw sanctions yesterday on Russia, but this is already the second round, and we haven't seen any real backlash or major impact."
At the same time, Thielke said expectations on the U.S. employment report, due out on Friday, are quite high.
A Reuters poll showed economist expect the U.S. economy to have created 210,000 jobs in March.
In morning trading, the benchmark 10-year U.S. Treasury note was rose 3/32 in price to yield 2.69 percent. Yields rose as high 2.73 percent, the highest since April 24.
Prices of 30-year Treasury bonds were flat, yielding 3.49 percent, compared with 3.48 percent the previous session. U.S. 30-year yields touched a peak of 3.52 percent, the highest level since April 22.
The five-year note was also flat, yielding 1.74 percent.
U.S. Treasury yields pulled back from their highs, however, after a flat reading on U.S. home prices in February and a dip in the consumer confidence index.
Later in the session, the Treasury will sell $15 bln in 2-year floating rate notes, while the New York Fed will purchase $2.00 bln to $2.50 bln of May 2021 - February 2024 notes to finish off the April buybacks.
Apple is also in the spotlight in the bond market. The tech giant is expected to raise between $8-$10 billion from its seven-tranche bond deal, market sources said on Tuesday. One of the sources said the company was only expected to price the dollar-denominated deal on Tuesday, amid expectations the issuer will also target other currencies.