Safe-haven German Bunds sold off after an external audit of Spain's ailing banks uncovered capital needs in line with market expectations, but Treasuries were little changed with traders saying it was still inevitable that the country would need financial aid.
The audit showed a 59.3 billion euro shortfall in the event of a serious economic downturn. Markets were expecting 60 billion euros, but some investors had feared a higher figure. .
Credit agency Moody's is also expected to deliver its verdict on the country in coming days, with Spain's rating perched on the edge of "junk" status.
"Moody's could potentially be a final nail in the coffin, but rather it's more likely it keeps dragging on, one hurdle after another, after another," a trader said. "It all just points in one direction... heading into the end of the year, Treasuries should still be supported here."
Benchmark 10-year US Treasury yields were unchanged at 1.633 percent, with T-note futures also steady at 133-31/64.
"Short term, the main driver of Treasury yields remains Europe," Lloyds Bank strategists said in a note. "Were expectations of a formal request for... assistance by Spain to acquire conviction, we might see another bout of 'disaster risk premium' unwinding."