Bond prices tumbled on Wednesday after the U.S. government's auction of five-year Treasury notes weak demand.
The Treasury Department auctioned $35 billion in five-year notes at a high yield of 1.80 percent. The bid-to-cover ratio, an indicator of demand, was 2.56, compared to a recent average of 2.75.
After the auction, five-year notes traded 6/32 lower in price, with the yield at 1.80 percent, up from Tuesday's close of 1.761 percent.
Yields on benchmark 10-year notes — used to calculate mortgage rates and other consumer loans—were at 2.56 percent on Wednesday, up from a close of 2.533 percent.
Initially higher, Treasury bonds fell after a report showed newly constructed homes sold at the fastest clip since May 2008, boosting hopes that construction could ramp up in the coming months.
U.S. sales of new homes surged in August, led by a wave of buying in the West and Northeast.
The Commerce Department says new home sales climbed 18 percent last month to a seasonally adjusted annual rate of 504,000. The report also revised up the July sales rate to 427,000 from 412,000.
This comes after the National Association of Realtors reported on Monday that sales of previously owned homes declined 1.8 percent last month.
Market sentiment remained subdued after the U.S. and its Arab allies (Saudi Arabia, Qatar, Jordan, Bahrain and the United Arab Emirate) bombed militant groups in Syria for the first time this week, killing scores of Islamic State fighters.
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The Associated Press contributed to this report.