NEW YORK: US Treasuries yields rose on Tuesday as investors and Wall Street dealers reduced their debt holdings ahead of a $21 billion auction of 10-year government notes even as oil prices sank to their lowest in nearly six years.
The yield increase accelerated after the National Federation of Independent Business said its index of small business optimism rose in December to its strongest level in more than eight years.
Gains on Wall Street, partly due to stronger-than-expected quarterly results from aluminum producer Alcoa, and a growing supply of higher-yielding corporate bonds added to the selling in Treasuries, analysts said.
"It's just concession building," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York.
The reversal in yields occurred after 30-year yield touched record lows and 10-year yield hit its lowest level since May 2013 in overseas trading.
In early U.S. trading, benchmark 10-year Treasuries yield was 1.922 percent, up 1 basis point from late on Monday after hitting 20-month low of 1.8640 percent.
The 30-year bond yield was 2.512 percent, up 2 basis points. It touched a record low of 2.461 percent earlier, according to Reuters, Tradeweb data.
A drop in U.S. oil prices below $45 a barrel caused some traders to build bets that weak domestic price growth would reduce the likelihood the Federal Reserve might raise short-term interest rates in 2015.
"It's all about oil. We haven't got an arrest in its decline," Goldberg said.
Falling inflation expectations exerted downward pressure on U.S. Treasury Inflation Protected Securities, whose yield differences or breakeven rates versus regular Treasuries are watched by the U.S. central bank.
Five-year TIPS inflation breakeven rate fell to 1.07 percent, the lowest since September 2009, while the 10-year breakeven rate declined to 1.53 percent, the lowest since August 2010, according to Tradeweb data.
In the meantime, analysts expected solid demand for the latest 10-year auction at 1 p.m. (1800 GMT) following strong bidding for $24 billion in three-year notes on Monday.
The Treasury will complete this week's $58 billion offering of fixed-rate securities with a $13 billion sale of 30-year bonds on Wednesday.
In the "when-issue" market, traders expected the second reopening of the 10-year issue introduced in November to fetch a yield of 1.935 percent. This would be the lowest yield at a 10-year note sale since May 2013.
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