Ten-year Treasuries moved down 3/32 in price propping the yield to 1.6881 percent, the highest level since June 13. The move builds on a rally that started when the yields bounced off historic lows below 1.4 plunged on July 25.

The move higher has been fuelled by US jobs data that beat forecasts last Friday, and as markets expected the European Central Bank to stand by its pledge to do anything to defend the euro.

On top of that, a healthy Australian jobs report and a drop in Chinese consumer inflation which left room for further policy easing, diminished demand for the safe-haven US debt.

China's annual consumer inflation fell to a 30-month low of 1.8 percent in July from June's 2.2 percent, while the producer price index dropped 2.9 percent in July from a year earlier.

The Treasury's sale of 10-year notes had a bid-to-cover ratio - a measure of demand - that was the lowest since August 2009, and the high yield in the auction topped expectations, indicating investors were reluctant to buy the debt at open-market prices.

Keeping investors on their toes, 10-year Spanish government bond yields touched 7 percent overnight as investors speculated it may take time for Spain to ask for a bailout, which would open the door for ECB intervention.

Although the ECB has outlined plans to buy sovereign debt alongside the euro zone's bailout funds, it will not happen before September and not unless either Spain or Italy first ask to access the funds, something that would involve submitting to strict supervision.

Thirty-year bonds were barely changed, yielding 2.753 percent.

The Treasury department will sell $16 billion of 30-year bonds at 1700 GMT to meet its quarterly refunding needs. It also announces the sale of 3- and 6-month bills at 1500 GMT.