Treasury prices pared their losses Monday after a strong $35 billion auction of two-year notes at a high yield of 0.74 percent and bid-to-cover ratio of 3.71.
Bond prices weakened before the auction, pushing two-year yields broke above recent technical supports.
The Treasury said earlier the last two-year note sale of the year would proceed, after some traders had speculated the auction might be delayed because of a storm that blanketed the Northeast, including New York, in snow.
The storm left many trading desks sparsely staffed, and dealers were also seen to be hesitant to take on much new debt as they close their books for year-end.
"It's very thin dealing conditions," said William O'Donnell, head of U.S. Treasury strategy at RBS Securities in New York.
"I think it's going to be another typical December auction, and that is a disappointingly weak bid-to-cover ratio as many dealer balance sheets are contained and at the same time a lot of people aren't even in to begin with," he said.
Two-year notes dropped 04/32 in price to yield 0.73 percent, the highest level since June, after breaking through recent support levels at around 0.69 percent to 0.70 percent. The next support is around the 0.80 percent area, said O'Donnell.
Intermediate-dated debt was also among the worst performing notes on Monday, with five-year notes falling 09/32 in price to yield 2.2 percent while benchmark 10-year notes dropped 09/32 to yield 3.43 percent.
The Treasury also plans to sell $35 billion in five-year notes on Tuesday and $29 billion of seven-year notes on Wednesday.
David Ader, head of government bond strategy at CRT Capital in Stamford, Connecticut, said there was little to support Treasurys on Monday.
"We have a smaller audience than we otherwise would have had because of the weather, no key data, no Federal Reserve speakers," he said.
Bond purchases from the Federal Reserve's $600 billion buying program are also not scheduled to resume until Tuesday, when the U.S. central bank will buy between $6 billion and $8 billion of notes due 2013 and 2014.
One positive for the market is data that showed foreign central banks have recently increased their buying of U.S. government debt, said O'Donnell of RBS.
According to Federal Reserve data released on Thursday, overseas central banks' holdings of Treasury debt rose by $13.08 billion in the most recent week to stand at $2.625 trillion.
"That is a developing positive that should help support the Treasury market ultimately," said O'Donnell.
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