Treasury yields rise before longer-dated supply

US 10-YR
US 30-YR

U.S. Treasury debt yields rose on Tuesday as traders sold some bond holdings in advance of a combined $40 billion in longer-dated supply, which some traders worry might not lure strong demand due to their low yields.

Wednesday's auction of $24 billion in 10-year notes and Thursday's $16 billion sale of 30-year securities follow solid results at the $27 billion three-year note auction.

"Heading into tomorrow and Thursday, this is the time for a set-up for longer-dated supply," said Stanley Sun, interest rate strategist at Nomura Securities International in New York.

In the "when-issued" market, the upcoming 10-year note issue due August 2024 was quoted to sell at a yield of 2.460 percent , which would be the lowest since June 2013.

Earlier, the three-year note sale fetched a yield of 0.924 percent, which was the lowest in four months.

The selling pressure from this week's bond supply has been offset by a steady bid for safe-haven Treasurys on worries about conflicts in Iraq, eastern Ukraine and Gaza. Benchmark 10-year yields have lingered not far from last week's 14-month low of 2.349 percent.

"The U.S. bond market has been driven a lot by external and geopolitical factors rather than improving domestic data," said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey.

Tension remained high in Iraq as its prime minister Nuri al-Maliki refused to step down after his replacement was named.

Israelis and Palestinians, amid a 72-hour truce, have not reached a deal to end their month-old war in Gaza.

Fears that a Russian aid convoy to Ukraine could become a pretext for an invasion into eastern Ukraine, where government forces are closing in on pro-Russian rebels, knocked a closely watched gauge on German investor and analyst sentiment to its lowest level in more than 1-1/2 years in August.

The index decline supported the view the European Central Bank would act aggressively soon to help the fragile euro zone economy, pushing 10-year German Bund yields near their record low set last week.

The rockbottom Bunds yields helped to keep a lid on the rise in Treasury yields despite encouraging domestic data on jobs and business activity, analysts said.

On low trading volume, benchmark 10-year Treasurys yields were last at 2.444 percent, up 2.4 basis points from late Monday, while the 30-year bond yield rose 3.5 basis points to 3.268 percent.

Separately, the Federal Reserve bought $1.09 billion in Treasuries due in 2039 to 2043, the latest for its bond purchase program that is expected to wind down in October.

—By Reuters