US bond prices little changed amid supply

Traders work in the S&P 500 options pit at the Chicago Board Options Exchange.
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Traders work in the S&P 500 options pit at the Chicago Board Options Exchange.

U.S. Treasurys prices ended little changed on Tuesday after the Treasury's $32 billion three-year note sale drew solid demand.

A quiet morning yielded to some more active pockets of trading in tight ranges across the curve, said Justin Lederer, Treasury strategist at Cantor Fitzgerald & Co. in New York. Treasurys traded on the heavy side at first as traders cut prices ahead of the Treasury's auction, he said. The price concessions, and higher yields, drew buyers to auction.

The strong results were evidenced by a 3.21 ratio of bids received over those accepted. After the auction, the market pared narrow losses, leaving it little changed on the day. The market faces more supply challenges in the next two days as the Treasury executes the second and final parts of its three-part August refunding, selling $24 billion in 10-year notes on Wednesday and $16 billion in 30-year bonds on Thursday.

(Read more: Now even Fed dove sees taper soon)

Meanwhile, the Federal Reserve is set to buy coupons at the long end of the maturity curve on Wednesday, another of the large-scale purchases it has committed to in order to foster economic growth and lower unemployment.

The 10-year notes to be sold on Wednesday carry the highest coupon in such a sale since May 2011, a factor that could draw solid demand similar to what was seen at Tuesday's sale.

James Sarni, managing principal at Los Angeles-based Payden & Rygel, said the day's trading offered no dramatic revelations. Stock market losses gave a bit of a bid to safe-haven U.S. debt, but the market is mainly trying to calibrate itself to the degree of likelihood that the Federal Reserve might slowly begin to be a slightly less active buyer of bonds, he said.

The U.S. central bank currently buys $85 billion a month in U.S. Treasurys and mortgage-backed securities as part of its quantitative easing program.

(Read more: Siegel: Keep buying—you 'can't lose')

"The Fed at some point will begin to reduce the amount of accommodation in the system, and what's causing this interim volatility in the market is that people are trying to figure out when—and by how much—that's going to happen," Sarni said.

On the open market, benchmark 10-year Treasury notes were unchanged in price, yielding 2.643 percent. The 10-year yield has traded in about a 30 basis point range after it hit a 23-month high of 2.755 percent in early July.

US Treasury yields

US 10-YR
US 30-YR