Yields bounce back after strong demand for notes at auction

US Treasury yields rose back after declines on Monday as investors showed continued demand for notes at auction and prepared for a dovish message from the US Federal Reserve later this week.

The benchmark 10-year yield was up one basis point at 0.5987% in afternoon trading after reaching as low at 0.569% earlier in the session.

Midday auction results showed the US Treasury sold $48 billion of 2-year notes at a high yield of 0.155%, and sold $49 billion of 5-year notes at a high yield of 0.288%.

For each note, the auction result was the lowest on record even as the amounts sold were the largest, said BMO Capital Markets rates strategist Ben Jeffery. The outcomes showed solid demand for the securities as Washington leaders try to finish a new aid plan with jobless benefits set to expire amid the COVID-19 pandemic.

"The fact that these auctions are still met with solid demand, even at such a low yield, is encouraging," he said. "It means there is still more space for issuance increases if needed."

No major announcements are expected at the end of the US central bank's two-day meeting on Wednesday. But analysts foresee policymakers laying the groundwork for weak economic expectations and more dovish action later this year.

Investors bought up other safe- haven assets on Monday as Sino-US tensions rose and coronavirus cases climbed in southern and western US states. Gold prices soared to an all-time high on Monday while the US dollar fell.

Yields on 10-year inflation-protected US Treasury bonds were at minus 0.913%, on track for a record closing low.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 44 basis points, roughly unchanged since Friday's close.