Treasury prices fall ahead of auction

NEW YORK (CNNMoney.com) -- Treasury prices slipped for the first time in three days on Wednesday, even as stocks erased earlier gains.

What prices are doing: The benchmark 10-year note fell 7/32 to 102-22/32, pushing the yield up to 3.19% late Wednesday. On Tuesday, the 10-year note yielded 3.17% after touching 3.06% earlier, the lowest level in 13 months. Bond prices and yields move in opposite directions.

The 30-year bond edged lower by 17/32 to 104-31/32 and yielding 4.09%. The 5-year note lost 6/32 to 102-9/32, yielding 2.02%, while the 2-year note fell 18/32 to 99-27/32, yielding 0.83%.

On Tuesday, Treasury prices jumped as investors continued to worry about Europe's debt and its affect on the global economic recovery.

What's moving the market: Treasurys came under pressure early Wednesday as stocks rose following the release of positive economic reports from the government.

After the market open, the Commerce Department said new home sales soared 15% in April to a seasonally adjusted rate of 504,000, blowing past expectations of a rise to a 425,000-unit annual rate.

A separate report from the Commerce Department showed durable goods orders rose 2.9% in April, also beating economists' expectations.

Despite the rosy economic reports, stocks reversed direction in late trading, with the Dow Jones industrial average (INDU) ending below 10,000 for the first time in three months.

Markets have been rattled over the past month as investors worry the euro zone's debt could spread, despite a $1 trillion European rescue package introduced earlier in the month to stabilize the euro and help debt-choked countries such as Greece.

Kenneth Naehu, managing director and head of fixed-income at Bel Air Investment Advisors, said he expects the market's swings to continue as long as any uncertainty remains.

"One thing you should expect is volatility going forward," said Naehu. "People have their hands on the trigger so to speak, whether they are buying or selling."

Auctions: The Treasury Department auctioned $40 billion in 5-year notes on Wednesday, receiving bids totaling $108 billion.

On Tuesday, a $42 billion offering of 2-year notes was met with lackluster demand, receiving bids totaling $122.5 billion.

Investors will also be guaging demand at the last of this week's auctions on Thursday, during which the Treasury Department is scheduled to offer $31 billion in 7-year notes.

Lending rates: Bank-to-bank lending rates for three-month loans continued to edge higher Wednesday.

The London interbank offered rate, or Libor, ticked up to 0.538% after rising to 0.536% on Tuesday.

"Libor has about doubled in the past two weeks," said Naehu. "And while it's still a very low number, it's the direction that is a concern, since it is signaling uneasiness between banks lending to each other."

Libor is a daily average of interest rates that 16 London banks charge each other to lend money, and is used as a benchmark to calculate adjustable-rate mortgages and other loans.

Higher Libor rates indicate less lending among banks, while lower levels signal an increasing willingness to lend.