Treasurys edge lower on robust housing data

US 10-YR
US 30-YR

U.S. Treasurys pared earlier gains on Tuesday as fresh signs of easing geopolitical tensions in Ukraine and stronger-than-expected housing data sapped demand for safe-haven assets like government bonds.

Benchmark 10-year Treasury notes were 1/32 lower in price with the yield at 2.40 percent, off an earlier low of 2.36 percent. Thirty-year bonds moved lower too with the yield at 3.22 percent, off a 3.17 percent session low.

Russian President Vladimir Putin plans to meet with his Ukrainian counterpart Petro Poroshenko on August 26 in Minsk, Belarus, the Kremlin said Tuesday, boosting hopes that a solution between the two countries may be near.

The two leaders have not met since early June as fighting between Ukrainian troops and pro-Russian rebels raged on in east Ukraine.

Earlier, stronger-than-expected housing data but a modest increase in consumer inflation data for July, pushing the levels up from last week's 14 month lows.

"Inflation data is neither here nor there, but the housing data is a little bit more bearish for Treasurys. I think we'll be relatively rangebound," said Thomas Simons, money market economist at Jefferies LLC in New York.

U.S. housing starts rebounded strongly in July, pointing momentum in the economy, but a moderate increase in consumer prices suggested the U.S. Federal Reserve has room to keep interest rates low for a while.

Housing starts surged 15.7 percent last month to a seasonally adjusted annual 1.09 million unit pace, the Commerce Department said on Tuesday, snapping two straight months of declines. Economists had forecast starts to rise to a 969,000-unit rate.

In a separate report, the U.S. Labor Department said its Consumer Price Index edged up 0.1 percent last month as declining energy costs partially offset increases in food and rents.

"I think people are realizing that inflation is, at least for now, stabilized and heading back to a more normal level and not accelerating," said George Goncalves, head of rates strategy in the Americas at Nomura Securities in New York.

Investors await Wednesday's minutes from the July 29-30 Fed meeting, as well as Fed Chair Janet Yellen's speech at the annual gathering of central bankers in Jackson Hole, Wyoming on Friday.

"In the minutes, people will be looking for an exit strategy, but given data we have had, no one is expecting it to come sooner than previously expected. Fed futures are looking to Sept. 2015 and expectations in the market come around that time frame, which is late 2015," Simons said.

—By Reuters with CNBC