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Bonds inch higher on strong 2-year bidding, month-end demand

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U.S. Treasury debt prices edged higher on Monday after the Treasury's auction of two-year notes saw strong demand, but low volume and a lack of market-moving economic data capped gains.

Overall bidding, measured by the bid-to-cover ratio, came in at 3.71 in the Treasury's sale of $28 billion in two-year notes. That marked the highest level since December and helped push benchmark and 30-year Treasury yields, which move inversely to prices, to one-week lows.

"It's certainly very difficult to interpret it as a hawkish vote on Fed policy," said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut, on the strong bidding at Monday's auction.

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Shorter-dated Treasurys prices are expected to be most vulnerable to a highly-anticipated hike in rates from the Federal Reserve.

"Participation and willingness to fight the price action is limited given the holiday and lack of data," he said on the modest price gains across Treasury maturities after the auction.

The U.S. Treasury still has $13 billion in two-year floating rate notes, $35 billion in five-year notes and $29 billion in seven-year notes on tap this week. The U.S. bond market will be closed Thursday for the Thanksgiving holiday.

Analysts also said there was some demand for U.S. Treasurys ahead of month-end, when investors seek to rebalance their portfolios.

Treasurys yields remained in their recent narrow range on the lack of significant economic data or insight into Fed policy, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia.

Benchmark 10-year U.S. Treasury notes were last up 3/32 in price. The yield dipped to 2.30 percent, from 2.32 percent late on Friday and hovered near the one-week low. U.S. 30-year Treasury bonds were last up 4/32 in price. The yield slipped to 3.01 percent from 3.02 percent late on Friday and also hovered near a one-week low.

Two-year note prices were last roughly flat in price to yield 0.5 percent.

On Wall Street, the benchmark S&P 500 U.S. stock index closed up 0.29 percent.