Uncertainty about whether US lawmakers will raise the country's legal borrowing limit by an Aug. 2 deadline was likely to keep intraday moves choppy in volumes thinned by Asian holidays.

Most investors deemed a health check on euro zone banks too lax to assuage concern about the impact of their exposure to debt issued by struggling states such as Greece and Portugal, further souring appetite for riskier assets.

"This morning's price action has been dictated by what's going on in the euro zone, with peripherals once again blowing out," said Craig Collins, a trader at Bank of Montreal in London.

"The stress tests were very lenient and not very thorough but that kind of news works across global markets, not that there's any new news. Sentiment is still poor for stocks benefiting US Treasuries," he said.

T-note futures rose 6/32 to 125-4/64. The benchmark 10-year T-note yield was last 2 bps down on the day at 2.888 percent, edging nearer a seven-month low of 2.816 percent struck last week.

Treasuries slightly underperformed German Bunds, with the 10-year T-note yield premium over Bunds 2 bps wider at 25 bps compared with levels in late European trade.

Five-year T-notes yielded 1.416 percent, 2.5 bps less than in late New York trade while the 30-year T-bond yield was 1.4 bps down at 4.235 percent.

Analysts at RBS said investors should adopt a conservative approach in the near-term, adding that they expected intraday market swings to remain volatile.

"With yields highly volatile, preserving capital and waiting for clarity on Europe, the deficit negotiations, and the early Q3 economic data, is recommended," the RBS analysts said in a recent research note.

Copyright Reuters, 2011