LONDON: US Treasury prices stabilised as 10-year yields tested key technical levels and after a sharp sell-off in the previous session, fueled by upbeat data and news on Spain.
Ten-year US yields were 0.009 basis points lower at 1.81 percent - a 200-day moving average. On Wednesday, T-note futures took their biggest one day loss in more than a month.
"We tested some key support levels, namely the 200-day moving average that was enough to lure in some short-covering," trader Craig Collins at Bank of Montreal said.
"Fundamentally, the data has been pointing towards higher yields but the market has been holding in well because the Federal Reserve continues to come in and buy via Operation Twist," he said, referring to a stimulus program that extends the maturity of the central bank's Treasuries holdings in a bid to lower mortgage rates and other long-term borrowing costs.
The previous day's losses were driven partly by data showing that groundbreaking on new US homes surged in September to its fastest pace in more than four years - a sign the housing sector's budding recovery is gaining traction.
Investors will get fresh insight into the health of the world's largest economy later in the day with the release of weekly jobless claims and the Philadelphia Federal Reserve Bank's business activity index.
"The economic picture in the US is not as gloomy, as downbeat as some people suggest. I think as risk market sentiment remains positive, 10-year treasury (yields) will gravitate towards 2 percent by year-end," Nick Stamenkovic, bond strategist at RIA Capital Markets said.
Developments in Europe would also continue to be a key driver for US Treasuries, Stamenkovic added.
Spanish yields fell further on Wednesday after the country sold more bonds than expected, paying the least since February to borrow over 10 years, one day after Moody's affirmed its investment grade rating and as investors expect it to ask for aid and benefit from European Central Bank support.
"The major driver for Treasuries is events in Europe, including hopes of a sovereign bailout for Spain," Stamenkovic added.
Five-year bond yields were down 0.008 bps at 0.77 percent and thirty-year borrowing costs fell 2.2 bps to 2.98 percent.
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