Fresh headlines from Europe, this time focused on Cyprus and Spain, maintained the latest safety bid.
The latest ripple to hit market shores was the European Central Bank's announcement that Cyprus sovereign bonds would no longer be eligible collateral for ECB refinancing operations. Cyprus has become the fifth euro-zone country to seek emergency funding from Europe. The rescue it needs could cost more than half the size of its 17.3 billion-euro economy.
Meanwhile, Spain's short-term borrowing costs nearly tripled at an auction on Tuesday, spotlighting the recession-mired country's precarious finances.
Investors are looking ahead to a two-day summit of European Union leaders, beginning on Thursday, to see if any progress can be made toward alleviating Europe's debt crisis.
Tuesday's US Treasury price weakness was "supply-related," said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co in Seattle, noting investors often push for price concessions during auction weeks.
The Treasury sold $35 billion of two-year notes on Tuesday afternoon. It will also sell five-year notes on Wednesday and seven-year notes on Thursday for a total $99 billion in supply, and raising $42.916 billion in new cash.
"We've got supply to contend with at relatively low interest rates, but by the same token what is going to keep interest rates from rising by a significant amount is that the crisis in Europe continues," Hurley said.
Benchmark 10-year Treasury notes traded 11/32 lower in price to yield 1.64 percent, up from 1.61 percent late on Monday and near the mid-point of a trade range that has held since early this month.
"There is still plenty of demand for paper at all levels of the capital structure," said William O'Donnell, managing director and head of US Treasury strategy at RBS in Stamford, Connecticut. "We had 'buyer strikes' in December and now the same institutional accounts (who wouldn't buy in December) are buying the same paper at higher prices and lower yields."
"For most investors, a 10-year Treasury yield of 1.6 percent is not a reasonable investment, but the safe-haven flows continue," he said.
Data showing US single-family home prices rose for the third month in a row in April hinted at some recovery in the US housing market and was slightly negative for Treasuries. But unexpectedly weak consumer confidence in June was slightly positive for safe-haven US debt.
The S&P/Case-Shiller 20-city home price index rose 0.7 percent in April, topping economists' forecast for a 0.4 percent rise. The Conference Board's June consumer confidence index read 62.0, weaker than forecast.
Thirty-year Treasury bonds traded 22/32 lower in price to yield 2.71 percent, up from 2.68 percent late Monday.