The price of benchmark 10-year U.S. Treasuries edged down on Wednesday and demand at an auction to sell five-year bonds was low, as Congress failed to agree a deal on state debt increase and the budget deficit.
The 10-year paper yield rose six basis points to 3.01 percent. Bonds with a 3.125 percent coupon became 0.25 bp cheaper at 101.22 percent.
The U.S. Finance Ministry sold $35 billion worth of Treasuries at an auction where demand exceeded supply more than twice over, but was lower than at the last four sales.
The U.S. is on the brink of a default on its Treasuries - a previously unthinkable occurence - on August 2, unless Congress raises the ceiling for government borrowing. But congressmen link widening the debt limit with cutting the budget deficit, an issue on which Republicans and Democrats differ strongly.
Republicans, who support the plan by House of Representatives speaker John Boehner, propose to cut the deficit by $915 billion over the next 10 years, while the Democrats led by Harry Reid suggest slashing it by $2.2 trillion.
The Republicans also want to raise the debt ceiling by $2.5 trillion, while Democrats want to increase it by $2.7 trillion.
MarketWatch agency quoted Nomura Securities analysts as saying that the continuing uncertainty about the U.S. debt pummeled investors' sentiment at the auction.
Separately, the Federal Reserve said the recovery has lost steam in eight of 12 U.S. regions in recent weeks, with hiring modest, wages soft and price pressures subdued.
The Commerce Department said weak receipts for transportation equipment pushed down durable goods orders 2.1 percent in June after a 1.9 percent increase in May.
