Bond yields rise into market close

Japan 10-Year goes negative

U.S. sovereign bond prices fell in fickle trade ahead of Tuesday's close, following Monday's surge on the back of volatility in stock markets.

On Tuesday, benchmark 10-year Treasury notes yields rose to 1.736 percent after briefly dipping below 1.7 percent, near a 1-year low. (Bond yields move inversely to prices: CNBC Explains.)

Thirty-year bonds yielded 2.561 percent on Tuesday, having closed around 2.56 percent.

The Treasury Department Tuesday auctioned $24 billion in 3-year notes at a high yield of 0.844 percent. The bid-to-cover ratio, an indicator of demand, was 2.74, versus a recent average of 3.17.

Direct bidders, which includes domestic money managers, bought 15 percent, versus a recent average of 12 percent. Indirect bidders, which include major central banks, were awarded 41.5 percent, well below the 50 percent average.

"Demand for this auction was relatively soft as the buyside didn't show up with the same bid as the last few months," Jefferies economists Ward McCarthy and Thomas Simons wrote in a note.

U.S. stocks indexes held lower Tuesday afternoon as oil prices fell more than 3 percent.

U.S. Treasurys

German bund prices — viewed as a "safe haven" asset akin to U.S. Treasurys — also fell early on Tuesday, as did U.K. Gilts.

However, Japanese government bond prices continued to rise, following a torrid time in Japanese financial stocks overnight that meant risk aversion remained high. Yields on Japanese bonds are now negative through to 10 years.

The Nikkei 225 stock index closed around 5.40 percent lower, after falling for five of the past six sessions, and the yen fell below 115 yen to the U.S. dollar.

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The only U.S. data of note out on Tuesday was wholesale inventories and JOLTS (Job Openings and Labor Turnover Survey), both for December. Wholesale inventories dipped, while job openings rose slightly.

President Barack Obama's Federal budget for the fiscal year of 2017 was published at 11 a.m. Proposals include a $10-a-barrel tax on crude oil, but may garner little attention given the presidential election scheduled for November.

On Monday, Michael Bloomberg, the former New York mayor, said he was considering running for U.S. president, potentially adding a new dimension to the 2016 presidential race.

Federal Reserve Chair Janet Yellen is due to testify before Congress on Wednesday and Thursday.

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