NEW YORK: US Treasuries prices fell slightly in late trade on Wednesday after a $24 billion sale of 10-year US government debt - offering a yield above 2 percent - attracted good demand.
The US Treasury Department said it sold the 10-year notes at a high yield of 2.02 percent, with nearly a third of the bids awarded at the high.
Anticipation that a 10-year yield "north of 2 percent" would draw buyers to the auction proved correct, said Cantor Fitzgerald interest-rate strategist Justin Lederer.
Apart from the auction, the market struggled to discern the longer-term prospects of Greece, which is trying to meet the conditions of its lenders and avoid a chaotic default.
"We are in a wait-and-see mode with Greece," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
The benchmark 10-year note was down 1/32 at 100-6/32 in price, yielding 1.98 percent. The 10-year yield traded between 1.95 to 2.025 percent.
The 30-year bond was unchanged with a yield of 3.14 percent. It traded half a point in either direction with its yield range between 3.12 and 3.18 percent.
European Central Bank policy-makers remained split over the central bank's involvement in Greece's sovereign debt restructuring, which undercut optimism that Greek leaders would reach a fiscal reform deal to secure a second bailout from the International Monetary Fund and the European Union.
"The question is whether the Greek government can reach agreement on the conditions required to get the second bailout," said James Keegan, chief investment officer of Seix Investment Advisors and portfolio manager of the RidgeWorth Total Return Bond Fund. "Greece has too much debt, but it can't grow because the austerity measures are killing them."
Keegan said the ECB's three-year loans have been the force behind the stock market's improved performance in 2012.
But as stocks do better, the bond market is telling a different story, he said.
Treasury yields are low because the bond market senses there will be a global synchronized recession, Keegan said.
For poorer European nations, the euro is a straitjacket, and markets "are not priced for a disorderly default in Greece," he said.
Keegan said 10-year Treasury yields would trade in a range between 1.5 percent and 2 percent and if they broke out of that range, it would be to the downside.
Because short-term rates have been anchored by the Federal Reserve, when 10-year yields rise, the curve will steepen; when they fall, the curve will flatten, he said.
As part of its Operation Twist effort aimed at holding down long-term interest rates, the Fed on Wednesday sold $8.603 billion in coupons with maturities ranging from June 15, 2013, to November 30, 2013.
During the trading session, benchmark 10-year note yields crossed above the 2-percent threshold for the first time in two weeks. They had risen since Friday after a stronger-than-expected US January payrolls report and cautious optimism about Greece securing 130-billion-euro ($172 billion) in fresh aid.
"There is this backdraft from Greece. Are they on the edge of a deal, or are things going to fall apart?" said Larry Milstein, head of US government and agency trading at R.W. Pressprich & Co in New York.
Leaders of the three parties in the coalition of Greek Prime Minister Lucas Papademos are attempting yet again to reach a fiscal reform deal after Papademos postponed a meeting on the matter on Tuesday.
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