Treasurys fell Wednesday, reversing two days of strong gains, after an auction of 10-year notes showed weakening demand for the first time in four months.
The price of the 10-year note, often used as a benchmark for consumer loans, fell 13/32 to 99 15/32 in late trading. Its yield rose to 3.44 percent from 3.39 percent late Tuesday.
Prices, which traded in a narrow range early in the day, fell sharply following the results of the 10-year auction. The government sold $21 billion in 10-year notes.
Demand at the auction was the lowest in four months for any sale of 10-year notes. The government sells 10-year notes monthly.
The bid-to-cover ratio, a measure of demand, was 2.62 in the latest auction. It was the weakest demand since August, typically a quiet trading month, when the ratio was 2.49.
The ratio for $25 billion in 10-year notes auctioned last month was 2.81.
Weakness in the bond market also follows two days of strong gains, so short-term investors could be pocketing some profit. The 10-year note gained 13/32 on both Monday and Tuesday.
Concern about a global economic recovery and debt problems in Greece and Dubai drove investors into the safe haven of U.S. government-backed bonds. Federal Reserve chairman Ben Bernanke on Monday reassured traders inflation is unlikely to be a concern soon.
In other trading, the 30-year bond fell 25/32 to 99 8/32. Its yield rose to 4.42 percent from 4.38 percent. The government is scheduled to sell $13 billion in 30-year bonds on Thursday.
The price of the 2-year note fell 2/32 to 99 31/32. That sent its yield up to 0.76 percent from 0.73 percent.
The yield on the three-month T-bill fell to 0.01 percent from 0.02 percent. Its discount rate stood at 0.03 percent.
The cost of borrowing between banks fell. The British Bankers' Association said the rate on three-month loans in dollars _ the London Interbank Offered Rate, or Libor _ fell to 0.2552 percent from 0.2559 percent.