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US yields slip on lower oil, Europe worries

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U.S. Treasury debt yields fell on Tuesday as a gloomier outlook on the European economy from the region's ruling body raised the appeal of higher-yielding U.S. government bonds.

A Reuters report that suggested some national central bankers sought to challenge Mario Draghi's leadership style raised doubts whether the European Central Bank could step up efforts to stimulate the region's businesses and borrowing.

A surprise widening of the U.S. trade deficit in September raised the likelihood that the initially reported 3.5 percent pace of U.S. growth in the third quarter would be downgraded, reviving some bets the Federal Reserve might not raise benchmark U.S. interest rates in 2015.

The Commerce Department said the trade deficit grew 7.6 percent to $43.03 billion, compared with a forecast of $40.00 billion among analysts polled by Reuters.

Read MoreLook out below! Oil is not done falling

"The news from Europe was somewhat negative. On the U.S. side, recent data have been on the weak side too," said Stan Shipley, bond strategist at Evercore ISI in New York.

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Benchmark U.S. yields also retreated from 3-1/2-week highs set on Monday as crude prices fell to four-year lows in London on news top oil exporter Saudi Arabia cut its U.S. sales prices, which would keep a lid on domestic inflation, analysts said.

Moreover, caution about the outcome of Tuesday's U.S. elections, which would determine whether the Republicans wrest control of the Senate from the Democrats and expand their majority in the House of Representatives, fed safe-haven bids for Treasurys.

Benchmark 10-year Treasury notes were up 4/32 in price with a yield of 2.333 percent, down 1.5 basis points from late on Monday. The yield hit a session low of 2.303 percent.

Bids for Treasurys were held back by competing supply of corporate debt, which was expected to cross the $110 billion mark in November, according to IFR, a unit of Thomson Reuters.

The European Commission on Tuesday downgraded its forecast for euro zone economic growth in the next few years.

The dour outlook from the European Union's executive body raised bets the ECB might consider more action to stimulate the region's economy, pushing down yields on top-rated euro zone government bonds.

The 10-year German Bund yield fell 4 basis points to 0.815 percent, widening its spread against its U.S. counterpart to 1.53 percentage points.

In addition to lower European yields, another sharp decline in oil prices exerted pressure on U.S. yields. Brent crude in London settled down 2.3 percent to $82.82 a barrel after falling to $82.08, its lowest since October 2010.

Saudi's U.S. price cut was seen by analysts as a response to booming production from oil shale formations in North Dakota, Texas and other parts of the United States.