NEW YORK: US Treasuries prices were mixed on Wednesday in thin and choppy year-end trading ahead of a seven-year note auction by the Treasury and as oil retreated.
Oil prices slid towards 11-year lows, reversing gains made on Tuesday as the King of Saudi Arabia made it clear the kingdom has no intentions of scaling back production.
"This whole week has been trading off oil and today oil is down a little, which may give a little support to Treasuries," said Tom Simons, money market strategist at Jefferies & Co in New York.
A drop in oil suggests inflation will remain subdued. Analysts said the drop in oil has further flattened the U.S Treasury curve, which involves selling the front-end of the curve and buying the long-end.
The yield on the five-year note climbed to 1.824 percent in morning trading, its highest level since September 2014, a move traders attributed to light volume and market volatility.
A 0.9 percent decrease in pending home sales briefly pushed prices on longer-dated U.S. Treasuries into positive territory as they had previously been hovering near zero.
The yield on the U.S. two-year note was last up 1/32 in price to yield 1.091 percent. The yield reached 1.103 percent on Tuesday, its highest since April 2010.
"The two-year Treasury note has doubled its yield from the start of 2015 and we think there'll be continued pressure on the short-intermediate end of the curve," said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management in Kansas City, Missouri.
The Treasury will conclude its sale of $90 billion of notes with a $29 billion auction of seven-year notes at 1:00 p.m. (1800 GMT). Traders expect bargain-hunters to lead demand in hopes of taking advantage of the cheaper year-end market.
"The five-year auction yesterday tailed, suggesting market participants aren't interested in taking down duration the day before year-end and we'll see a similar story with the seven year today," said Simons.
Benchmark 10-year U.S. Treasury notes were last down 1/32 in price to yield 2.310 percent, up from 2.307 percent late on Tuesday.
The U.S. 30-year bond was last down 5/32 in price to yield 3.049 percent, up from 3.041 percent late on Tuesday.
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