U.S. bond prices fell on Tuesday with benchmark yields at their highest in two weeks in after the government's $32 billion of two-year note auction, the first part of this week's $96 billion in coupon-bearing supply.
The Treasury Department auctioned $32 billion in two-year notes at a high yield of 0.447 percent. The bid-to-cover ratio, an indicator of demand, was 3.35.
Traders expected the notes to sell at a yield of 0.444 percent, below the 0.469 percent yield in March, according to Tradeweb.
Investors and Wall Street dealers typically sell older government debt issues to make room for new supply, pushing bond yields higher.
"The market is leaning to an early set-up for the auctions,'' said Mike Cullinane, head of Treasurys trading at D.A. Davidson in St. Petersburg, Florida.
After Tuesday's auction, the Treasury Department will sell $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday.
On the open market, benchmark 10-year Treasurys notes last traded 3/32 lower in price with a yield of 2.73 percent, up 2 basis points from late on Monday. This was the highest level since April 4 and above its 200-day moving average of 2.726 percent, Reuters data showed.
Meanwhile, 30-year bonds traded 15/32 higher in price to yield 3.50 percent, while were flat at 0.41 percent.
Reduced safehaven bids for U.S. government debt also put pressure on the bond market in the wake of a four-way peace deal last Thursday in a bid to ease tension in eastern Ukraine where pro-Russian separatists have taken over towns and key facilities.
Treasurys volume showed a slight pickup in early trading after the U.S. bond market posted its lowest daily volume so far in 2014 on Monday, according to data from CME and Tradeweb.
Investors remained on the defensive on U.S. bonds heading into next week's Federal Reserve policy meeting and the release of the government's April payrolls report.
The difference between the share of investors who are short longer-dated Treasurys than those who are long rose to its highest level in about 11 months, a J.P. Morgan Securities survey released on Tuesday showed.
The share of "short'' investors exceeded the share of "long" investors by 23 percentage points on Monday, up from 21 points last week. This was the most since May 28, 2013, it said.
—By Reuters with CNBC