NEW YORK: US Treasury debt prices fell Wednesday as investors took profits on the previous day's gains and worked to cheapen prices ahead of a debt sale later in the afternoon.
Investors were also taking cues from weaker European debt prices, while strength in US stocks undermined the safe-haven appeal of US government debt.
"This is a natural reaction to retrace some of yesterday's move given that Spain is trading a little better and Italy is trading a little better. Yesterday's move was all about European contagion and now things look a little more cheery than they did yesterday. The flight to quality mentality is reduced a little bit," said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.
Treasuries followed German bond prices down after a poorly-received 10-year Bund auction where rock-bottom yields soured demand for the euro zone benchmark despite concern over the ability of the currency bloc to contain its debt crisis. Spanish and Italian government debt also traded lower in price.
Benchmark 10-year Treasury notes were trading down 14/32 to yield 2.04 percent, up from 1.99 percent late Tuesday, while 30-year bonds were 1-4/32 lower to yield 3.19 percent from 3.13 percent.
Treasuries prices have been rising, and yields falling, since Friday when much weaker than expected jobs growth in the US in March spurred worries over global growth, and as concerns over Spain's debt outlook renewed worries about the European debt crisis.
Benchmark note yields touched 1.96 percent on Tuesday, marking the lowest in over four weeks.
Investors on Wednesday also were looking to whittle away at Treasuries prices ahead of the auction of $21 billion of reopened 10-year notes on Wednesday.
The sale of $32 billion of three-year notes on Tuesday was met with solid demand, and the US is set to auction $13 billion of reopened 30-year bonds on Thursday.
Meanwhile, Atlanta Federal Reserve President Dennis Lockhart on Wednesday said that the US economy remains fragile but that things would have to get a lot worse for the Fed to launch another round of monetary stimulus.
"I'm somewhat reticent to consider another round of quantitative easing at this time," Lockhart told a press briefing on the sidelines of a conference sponsored by his bank.
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