US Treasury yields rally after US trade deficit data

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U.S. Treasury yields reversed an earlier dip caused by ADP employment data on Wednesday, to move higher after it was reported that the U.S. trade deficit widened more than expected in June.

"The steepening today is partially helped by the weaker-than-expected ADP data," said Robbert van Batenburg, director of market strategy at Societe Generale in New York.

The skepticism that the U.S. central bank would be able to move in September came despite comments from Atlanta Fed President Dennis Lockhart on Tuesday.

Lockhart, who spoke to The Wall Street Journal, said the economy is ready for an increase in short term rates and it would have to deteriorate significantly for it to persuade him not to move.

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He said there was a "high bar right now to not acting, speaking for myself." Lockhart is one of the first Fed officials to speak since the Fed met last week, and his comments sent the dollar and bond yields higher.

The yield on the benchmark 10-year Treasury notes moved up 4 basis points to 2.259 percent. The yield on the 30-year moved up 4 basis points to 2.935 percent, off a session high of 2.96 percent. When a bond's yield falls, its price rises.

His comments have renewed analyst expectation that a Federal Reserve interest rate rise in September is firmly back on the cards, ahead of this Friday's all important jobs report.

Read MoreFed's Lockhart: Sept hike could be 'appropriate': Report

Economists had expected to see 215,000 private-sector payrolls, down from 237,000 last month. Meanwhile, economists expect 223,000 nonfarm payrolls in the government's employment report Friday, and that is one of the final key pieces of data the Fed will review before it September meeting.

A separate report showed the pace of growth in the U.S. service sector surged in July to its best level in a decade, led by sharp increases in business activity, employment and new orders.

—Reuters contributed to this report.