NEW YORK: US Treasuries prices held steady on Wednesday in thin and choppy year-end trading after a disappointing seven-year note auction and as oil retreated from gains made earlier in the week.
The yield on the five-year note climbed to 1.824 percent, its highest since September 2014, before reversing course and ending the day little changed, a move traders attributed to light volume and market volatility.
The Treasury concluded its sale of $90 billion of notes with a $29 billion auction of seven-year notes, which drew weak demand due to some investors already closing books for the year.
"It was a pretty soft auction with little saving grace and it was a sour note to end the year on and it's largely because of the timing," said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York.
Treasuries prices got a momentary lift on news that Puerto Rico will default for the second time in five months.
Oil prices slid toward 11-year lows, dragging equities down and reversing gains after Saudi Arabia made it clear the kingdom has no intentions of scaling back production.
A drop in oil prices suggests inflation will remain subdued. Analysts said the oil decline has further flattened the U.S Treasury curve, which involves selling the front-end of the curve and buying the long end.
"Economic data have been on the soft side, oil prices are falling, there's thin trading, supply is coming at a bad time and anticipation that the Fed will hike a few times next year have caused some volatility," said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management in Kansas City, Missouri.
The two-year note was last up 1/32 in price to yield 1.075 percent, down from 1.095 percent late on Tuesday. The yield reached 1.103 percent on Tuesday, its highest since April 2010.
"The two-year Treasury note has doubled its yield from the start of 2015 and we think there'll be continued pressure on the short-intermediate end of the curve," said Heckman.
Benchmark 10-year U.S. Treasury notes were last flat in price to yield 2.305 percent, from 2.307 percent late on Tuesday.
The U.S. 30-year bond was last down 2/32 in price to yield 3.044 percent, up from 3.041 percent late on Tuesday.
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