Treasurys rose on Tuesday after the government sold $30 billion in new three-year notes to better-than-average demand, and as investors looked ahead to the release of the minutes from the Federal Reserve's March meeting on Wednesday.
The government sold the new three-year debt at a high yield of 0.90 percent, the same level where the notes were trading before the auction. Direct bidders, which includes some central banks, large fund managers and other investors, bought 24 percent of the notes, their highest share since February 2013.
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The Treasury will next sell $21 billion in 10-year notes on Wednesday, which analysts see as likely to attract solid demand. The government will also sell $13 billion in 30-year bonds on Thursday.
"I think there will be a decent bid I'm still a believer in a flatter curve and I think 10s and bonds are going to be attractive," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.
Traders expect the new 10-year notes will price at yields of 2.69 percent, around half a basis point higher than where the debt is trading in the secondary market. The Treasury yield curve has flattened dramatically since Fed chair Janet Yellen said in a press conference after last month's meeting that the U.S. central bank could raise interest rates six months after its bond-buying program ends, suggesting a potential rate hike as early as spring 2015.
An expectation of an increase in interest rates can hurt intermediate-dated debt including five-year and seven-year notes more than longer-dated bonds, shifting the shape of the yield curve.
The spread between yields of five-year notes and thirty-year bonds contracted to 177 basis points on Friday, its flattest in five years, down from 208 basis points before Yellen's comments last month.
It then steepened back to 187 basis points, however, as disappointment over Friday's employment report for March led investors to reevaluate expectations for when the Fed is likely to begin raising rates.
Traders will now be watching to see whether the Fed discussed rate hikes during its March meeting. "The bet tomorrow is if they said something about tightening and the prospects of it over time, or if they didn't," said Tom Tucci, head of Treasuries trading at CIBC in New York.
Short-dated debt such as two-year notes may be supported if the minutes show there wasn't a discussion about the time frame, Tucci said.
Two-year notes weakened along with intermediate-dated debt after Yellen's comments. The yields rose to 0.50 percent on Friday, the highest since September, before falling back to 0.41 percent on Tuesday.
They have increased from around 0.34 percent before the Fed meeting.
The Fed bought $824 million in Treasury Inflation-Protected Securities (TIPS) due between 2018 and 2044 on Tuesday as part of its ongoing purchase program. It will purchase between $900 million and $1.15 billion in bond due from 2036 to 2044 on Wednesday.