US homebuilding fell for a second straight month in June and permits dropped to a two-year low, suggesting the housing market continued to struggle despite lower mortgage rates.

Building permits tumbled 6.1pc to a rate of 1.220 million units in June, the lowest level since May 2017.

"The housing starts were a little weaker but the building permits were definitely significantly weaker," said Justin Lederer, an interest rates strategist at Cantor Fitzgerald in New York.

Benchmark 10-year notes were last up 9/32 in price to yield 2.09pc, after falling as low as 2.08pc after the housing data.

Yields have risen from more than 2-1/2 year lows reached earlier this month and the yield curve has steepened as jobs, inflation and retail sales data show that the US economy is improving.

The move has been capped, however, with the Federal Reserve seen as certain to cut rates when it meets later this month as the US-China trade war weighs on the global economic outlook.

US President Donald Trump said on Tuesday the US still has a long way to go to conclude a trade deal with China but could impose tariffs on an additional $325 billion worth of Chinese goods if it needed to do so.

The US could also face Chinese sanctions, following a World Trade Organization ruling on Tuesday.

Interest rate futures traders are pricing in a 65pc chance of a 25 basis point cut this month and a 35pc likelihood of a 50 basis point cut, according to the CME Group's FedWatch tool.

Strong demand for European government debt is also adding to demand for US Treasuries. US debt offers a significantly higher yield than comparable German government bonds, which traded at a yield of minus 0.29pc on Wednesday.