US Treasury yields were little changed on Wednesday in advance of the government's record $26 billion sale of 10-year notes, which is the second leg of this week's $78 billion in quarterly refunding. The 10-year auction followed mediocre demand for $34 billion worth of 3-year debt on Tuesday.
Analysts expect solid demand for the latest 10-year supply at 1 p.m. (1700 GMT) as 10-year yields rose from two-week lows reached on Monday when investors sought a safe haven due to trade friction between China and the United States.
Expectations of further interest rate increases from the Federal Reserve, domestic growth and inflation likely to at least stall at current levels and lower bond yields in other parts of the world should also stoke investor demand at the upcoming 10-year auction, analysts said.
"For the auction, we believe there will be decent demand around the current yield levels as longer maturities remain more attractive given the Fed, growth/inflation expectations and global yields," Cantor Fitzgerald Treasury strategist Justin Lederer wrote in a research note.
On the other hand, survey and positioning data suggested investors and traders are not keen on snapping up longer-dated Treasuries. At 9:43 a.m. (1343 GMT), the yield on benchmark 10-year Treasury notes was 2.969 percent, marginally lower than late on Tuesday.
Last week, the 10-year yield reached a 10-week peak at 3.016 percent before retreating to a two-week trough at 2.925 percent on Monday. In "when-issued" activity, traders expected the 10-year supply would sell at a yield of 2.964 percent, up from 2.859 percent at the prior 10-year auction in July, Tradeweb data showed.
Washington's tough trade stance against China poses a risk to economic growth, which would keep a lid on longer-dated Treasury yields, analysts said. On Wednesday, Beijing is imposing additional import tariffs of 25 percent on $16 billion worth of US-made goods in response to the Trump administration's decision to slap a 25 percent levy on another $16 billion of Chinese imports on August 23.
Richmond Federal Reserve President Thomas Barkin acknowledged growing concerns over tariffs, but maintained the domestic economy is growing fast enough to warrant further increases in short-term rates. Interest rates futures implied traders saw a 98 percent chance the US central bank would raise overnight bank borrowing costs by a quarter point to 2.00-2.25 percent at its September 25-26 policy meeting, CME Group's FedWatch program showed.
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