NEW YORK (Reuters) - Treasury debt prices fell on Wednesday as investors took profits on the previous day's gains and worked to cheapen prices ahead of a debt sale later in the afternoon.
Investors were also taking cues from weaker European debt prices, while strength in U.S. stocks undermined the safe-haven appeal of U.S. government debt.
"Yesterday's move was all about European contagion and now things look a little more cheery than they did yesterday. The flight to quality mentality is reduced a little bit," said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.
Treasuries followed German bond prices down after a poorly-received 10-year Bund auction where rock-bottom yields soured demand for the euro zone benchmark despite concern over the ability of the currency bloc to contain its debt crisis. However, Spanish and Italian government debt traded higher in price after plunging in recent days.
Benchmark 10-year Treasury notes were trading down 12/32 in price to yield 2.03 percent, up from 1.99 percent late Tuesday, while 30-year bonds were 29/32 lower to yield 3.18 percent from 3.13 percent.
"Europe, at least in conversation, has a somewhat better tone, which is easing the flight-to-quality bid and pushing stocks higher," said Kevin Giddis, managing director of fixed income at Morgan Keegan in Memphis, Tennessee.
Treasuries prices have been rising since Friday when much weaker than expected jobs growth in the United States spurred worries over global growth and concerns over Spain's debt outlook renewed jitters about the European debt crisis.
Benchmark note yields touched 1.96 percent on Tuesday, marking the lowest in over four weeks.
Investors also were looking to whittle away at Treasuries prices ahead of the auction of $21 billion of reopened 10-year notes on Wednesday.
The sale of $32 billion of three-year notes on Tuesday was met with solid demand, and the United States is set to auction $13 billion of reopened 30-year bonds on Thursday.
Meanwhile, Atlanta Federal Reserve President Dennis Lockhart on Wednesday said that the U.S. economy remains fragile but that things would have to get a lot worse for the Fed to launch another round of monetary stimulus.
"I'm somewhat reticent to consider another round of quantitative easing at this time," Lockhart told a press briefing on the sidelines of a conference sponsored by his bank.
The Fed joined in Wednesday's selling, getting rid of $8.624 billion of Treasuries ranging in maturity from July 2012 through January 2013 as part of its latest stimulus program, dubbed "Operation Twist."
(Editing by Andrew Hay)