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Treasurys pare losses after 2-year auction

SAN FRANCISCO (MarketWatch) -- Treasury prices pared losses on Tuesday as uneasiness about Europe persisted and the U.S. government received lackluster demand at its first major auction of the week.

Yields on benchmark 10-year notes (10_YEAR) , which move inversely to prices, rose 2 basis points to 1.63%, after being as high as 1.65% earlier in the session. A basis point is one one-hundredth of a percentage point.

Yields on 30-year bonds (30_YEAR) added 2 basis points to 2.70%, down from a high of 2.72% earlier.

Five-year yields (5_YEAR) increased 1 basis point to 0.73%.

The Treasury Department sold $35 billion in 2-year notes (2_YEAR) at a yield of 0.313%, slightly higher than last month's auction yield of 0.3%.

After the auction, the yield on the current 2-year note was little changed at 0.31%, after touching 0.33% earlier, its highest level since early April. It's been fairly steady in a small range since the Federal Reserve said it would keep its benchmark rate on hold until 2014.

Bidders offered to buy 3.62 times the amount of debt sold, close to the average of 3.69 times in the past six auctions, according to Nomura Securities.

Indirect bidders, which includes foreign central banks, bought 31.7% of the sale, in line with the recent average.

Direct bidders, which includes domestic money managers, purchased another 7.9%, down from an average of 11.8%.

A higher proportion of auctions going to indirect and direct bidders is considered good for the government and the market. That's because those bidders tend to hold onto the securities longer. Otherwise, the bulk of the auction gets bought by primary dealers required to bid, who tend to turn around and sell the new securities into the market, putting pressure on prices.

Nomura said weaker non-dealer demand showed investors are willing to move into slightly longer-dated debt to get a better yield.

"We think the continued trend of investment fund migration up the curve should continue, Nomura analysts, led by George Goncalves, wrote in emailed comments. They "look for decent sponsorship for [5-year notes] tomorrow."

The government will sell $35 billion in 5-year debt on Wednesday and $29 billion in 7-year notes (7_YEAR) on Thursday.

Treasury prices remained under pressure after a report showed U.S. home prices rose faster than forecast in April, which supported equities. See story on home prices.

Separately, a report showing that consumer confidence slipped more than forecast in June had little impact. Read about consumer confidence.

Investors are still doubtful that a much-anticipated two-day summit of European Union leaders beginning Thursday will result in any concrete progress towards a further banking or fiscal integration of the euro zone. Read about Treasury market, EU summit.