NEW YORK: US Treasury prices were little changed on Wednesday, paring initial losses, in advance of a $34 billion auction of five-year notes following Tuesday's stellar two-year debt sale.
Short- and medium-term yields touched 10-week highs in earlier trading, as further gains on Wall Street and growing bets on a possible Federal Reserve rate increase this summer reduced demand for US government debt.
The decline in US bond prices was limited by expectations of solid bidding partly from overseas investors for the upcoming five-year notes portion of this week's $88 billion in coupon-bearing supply, investors and traders said.
"There's been a lot of demand at auctions especially with Bund and JGBs (Japanese government bonds) yielding very little," said Timothy High, senior US interest rates strategist at BNP Paribas in New York.
Still, US yields have risen from a week ago in reaction to hawkish minutes from the Fed's April policy meeting coupled with comments by several top US central bank officials who have suggested a rate increase could come as early as June if the economy recovers from a weak first quarter.
The government said on Wednesday the US advance goods trade deficit grew to $57.53 billion in April, less than what some analysts had forecast.
That signaled less drag on US growth in the second quarter.
Wall Street opened higher, extending gains from Tuesday, as oil prices rose and investors got more comfortable with the prospect of a rate increase as early as June.
US interest rate futures implied traders saw a 32 percent chance the Fed would hike rates by a quarter point from its current range of 0.25 percent to 0.50 percent at its June 14-15 meeting.
They suggested traders placed a 58 percent probability of a rate hike at the Fed's July meeting, according to CME Group's FedWatch program.
US 10-year Treasury notes were trading steady in price to yield 1.861 percent.
Earlier Wednesday, bets on a possible rate increase, together with a debt relief deal for Greece and a stronger-than-expected report on German business sentiment, propelled the two-year yield and five-year yield to 10-week highs at 0.938 percent and 1.424 percent, respectively.
Reduced anxiety about the prospect that Britain will vote to leave the European Union in a referendum on June 23 also pared safe-haven bids for German Bunds and US Treasuries, analysts said.
"We probably won't have a 'Brexit,' and we don't have to deal with the Greece issue this summer," said Don Ellenberger, head of multi-sector strategies at Federated Investors in Pittsburgh.
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