LONDON: US Treasury prices came under pressure on Tuesday from the prospect of a bout of supply this week and from weaker German Bunds, which were pulled down by the prospect of issuance from other highly-rated European borrowers. * US 10-year government bond yields firmed 1.4 basis points to 1.62 percent, as equivalent German yields rose 3.5 bps to 1.50 percent. Trading in German Bunds has been choppy ahead of an European Union summit later this week, the latest in a series which have so far stopped short of the radical decisions that traders and investors see as necessary to resolve the euro sovereign debt crisis.
The Treasury market must also absorb bond sales this week including $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday.
Given a sluggish global economic backdrop and uncertainty over how the euro zone debt crisis will develop, analysts said there should be plenty of appetite for the safe-haven paper at the auctions.
"That's easily going to be absorbed," one trader said. "Guys are long that stuff versus the long end of the curve, and I think it's going to go reasonably well."
Five-year US bond yields firmed 1.1 basis points to 0.72 percent, while 30-year yields rose 1.5 basis points to 2.69 percent.
The euro zone could create a treasury for the shared currency and issue euro bonds in the medium term as the final stage of a fiscal union, a document prepared for this week's summit of euro zone leaders showed on Tuesday. But analysts remained sceptical of any breakthrough this week after Germany on Friday resisted pressure for common bonds and a more flexible use of Europe's rescue funds.
Upping the pressure on policymakers, Cyprus became the fifth euro zone country to turn to Brussels for emergency funding on Monday..
Analysts said the direction of the Treasury market would be highly dependent on developments in Europe.
Asked whether US 10-year yields could go back towards their 1.44 percent record low, Charles Diebel, head of market strategy at Lloyds said: "A lot of that depends on Europe. If you get worst case scenario kicking off in Europe, then you will get down there and probably lower on the safe-haven support."
"In reality a sell-off towards 1.80, maybe as far as 2 percent is possible by year-end but that's only with ... better news," Diebel added.
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