US Treasury prices dipped on Wednesday as demand for an auction of 15 billion dollar in new five-year notes fell short of loftier expectations.
"It was just a real average auction," said Gerald Lucas, the chief Treasury and agency strategist at Banc of America Securities. "It sort of infers that the market isn't as short as people think."
The notes went at a high yield of 3.663 percent and drew bids for 2.33 times the amount on offer, below June's 2.91 level.
Indirect bidders, including customers of primary dealers and foreign central banks, picked up $5.73 billion or 38 percent of the whole issue. That was off from June's record 56 percent and the 43 percent average seen for the year so far. Primary dealers themselves got $8.58 billion of the issue.
"It was dead quiet leading up into the auction. We had a feeling that the solid bid wasn't going to show," said one trader at a US primary dealer. "The indirect bid was not huge, so the Street got more than they wanted."
The current five-year note US5YT=RR lost its modest early gains, with the yield inching up to 3.64 percent. In when-issued trading, yields on the new five-year paper had eased to around 3.6475 percent before the sale.
The benchmark 10-year Treasury note US10YT=RR edged 2/32 lower in price, while its yield was flat at 4.48 percent.
That remained well below the 4.76 percent peak of last week, reflecting the view that the Fed will not have to hike interest rates as quickly as once thought.
Still, analysts said given last week's huge rally, yields could only move so much lower before hitting a bottom.
Federal Reserve Vice-Chairman Roger Ferguson shed little light on the matter during a speech in New York. He presented a balanced view on inflation, saying that while he sees recent price increases as transitory, the central bank would stand ready to act if that view proved wrong. He also said sky-high US productivity could not be expected to grow indefinitely, although that is something the market has largely taken into account.
For now, there was little in the way of economic data to push the market in either direction.