U.S. Government bonds gain ahead of 5-year note auction

The US Treasuries gained Tuesday ahead of the 34 billion dollar five-year bonds auction, which is scheduled to take place today at 17:00 GMT. Also, investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil.

The yield on the benchmark 10-year Treasury note fell 3 basis points to 1.562 percent, the yield on 5-year bond dipped 2 basis points to 1.107 percent and the yield on short-term 2-year note slid 1-1/2 basis points to 0.742 percent at 12:20 GMT.

On the data front, markets were greeted by a milder than expect pullback in new home sales that saw the series come off its strongest reading in roughly nine years.

In terms of Fed speak, more hawkishly leaning comments came via Richmond Fed President Lacker and Dallas Fed President (both non-voters) that showed continued support for a move to raise rates before year-end. With the US election in full swing, we expect the Fed will likely remain on the sideline at the November meeting, setting up a likely rate hike in December.

However, the Fed has clearly made a more difficult path for itself in terms of threading the needle with no guarantees that data will continue to cooperate, allowing markets to second guess periodic data weakness will likely delay the Fed further. At some point, the Fed will have to step up and clarify that data dependence does not mean the Fed has managed to bottle perfection before ultimately deciding to move further down the path towards policy normalization.

The US Treasuries have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Federal Reserve's target. Crude oil prices fell as investors cashed in profits after relishing previous three percent jump in prices. The International benchmark Brent futures fell 2.60 percent to $46.68 and West Texas Intermediate (WTI) dipped 2.70 percent to $44.69 by 12:30 GMT.

Markets now look ahead to S&P/Case-Shiller home prices, Markit US Services PMI and Conference Board consumer confidence releases on Tuesday.

Meanwhile, the S&P 500 Futures traded 2 points higher at 2,142 by 12:30 GMT.