U.S. Treasuries prices edged higher on Tuesday, with concern about geopolitical tensions in Russia and Ukraine and weakness in China's economy spurring some demand for safe-haven bonds.
With diplomacy at a standstill in Ukraine, the acting president announced formation of a volunteer national guard, while ousted leader Viktor Yanukovich insisted he remained the legitimate leader.
"If you get a little bit of non-resolution on Ukraine, you start to protect yourself," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, on the modest demand for safe-haven Treasuries.
Traders also mulled recent data showing China's exports unexpectedly tumbled 18 percent year-on-year in February, swinging the trade balance into deficit and adding to fears of a slowdown in the world's No. 2 economy.
While inching higher, benchmark Treasuries prices remained relatively low after last week's drop in prices. A calming of geopolitical tensions and stronger-than-expected U.S. jobs data pushed the benchmark 10-year Treasury yield up 18 basis points to 2.79 percent last week.
The 10-year yield hit 2.82 percent on Friday, its highest level in six weeks. Bond yields move inversely to their prices.
Traders said prices remained low ahead of this week's new debt auctions, which are still expected to attract buyers despite modestly disappointing demand at the Treasury's $30 billion auction of three-year notes on Tuesday.
The three-year Treasury notes were sold at a high yield of 0.802 percent, which was slightly higher than expected, while outside buyers such as institutional investors bought less than half of the new supply. Both of those factors indicated sagging demand for the debt.
The Treasury will sell $21 billion in 10-year notes on Wednesday and $13 billion in 30-year bonds on Thursday, or $64 billion in total new supply for the week.
Traders also said prices remained low ahead of the U.S. Federal Reserve's policy meeting next week. Some investors expect the Fed to hint at raising short-term interest rates and cutting asset purchases further. Traders said those moves could hurt benchmark bond prices.
"There's some risk down the road about high rates and a perception of Fed tightening seeping into the markets," said Bulent Baygun, head of US interest rates strategy at BNP Paribas.
The 10-year U.S. Treasury note last traded up 4/32 in price to yield 2.768 percent, up slightly in price from late Monday, when the yield was at 2.784 percent.
The slight rise in benchmark Treasuries prices in afternoon trading occurred after prices edged lower following the release of Commerce Department data showing U.S. wholesale inventories rose more than expected in January, though sales posted their largest decline in nearly five years.
The rise in wholesale inventories could hint at stronger U.S. gross domestic product growth for the first quarter, said Vishal Khanduja, fixed income portfolio manager at Calvert Investments in Bethesda, Maryland.
Khanduja said the 10-year Treasury yield would likely stay within a range of 2.70-2.80 percent this week.
The U.S. Federal Reserve bought $1.15 billion in Treasuries maturing between Feb. 2036 and Aug. 2043 on Tuesday, which had a muted impact on Treasuries prices.
The 30-year U.S. Treasury bond last traded up 11/32 in price to yield 3.708 percent.
The three major Wall Street stock indexes fell, with the benchmark Standard & Poor's 500 stock index last trading down 0.53 percent.
(By Sam Forgione)