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Treasury prices climbed Tuesday after a round of European data, sending yields lower as investors prepared to digest an auction of 3-year notes that may sell at over 1% for the first time in three years.   The 10-year Treasury note (10_YEAR) yield, which falls as prices rise, was down 4.5 basis points at 2.574%, according to Tradeweb. The benchmark yield hit its lowest level in a week as investors stepped in to buy long-term U.S. government debt in the wake of a rise in yields last week.

Treasury prices began rising Tuesday as U.K. factory output unexpectedly fell in May by the most since the beginning of last year.

On the agenda Tuesday in the U.S. is a survey of Job Openings and Labor Turnover at 10 a.m. Two of the indicators in that report — the hiring rate and quits rate — are among Fed Chairwoman Janet Yellen’s favored labor market gauges.

3-year note auction

The Treasury Department will also sell $27 billion in 3-year notes (3_YEAR) at 1 p.m. Eastern as the government continues to cut the sizes of some of its shorter-term debt sales, which it has been paring down $30 billion in April. The Treasury sells $61 billion of notes in total this week.

The 3-year note yield, which is sensitive to expectations of monetary policy, has been rising since the end of May amid signs of an improving economy that some investors think will put pressure on the Fed to hike the policy rate earlier. Given that rise, the 3-year auction “coupon looks set to have a 1%-handle for the first time in 3 years,” according to David Keeble, global head of interest-rate strategy at Crédit Agricole Corporate and Investment Bank.

“For the past couple of years the 3-year auction demand has been driven by U.S. mutual funds, having taken over from what used to be strong foreign demand. That demand may be a little lighter today because over the past two weeks domestic fixed income funds have witnessed net redemptions,” he said.

The 30-year bond (30_YEAR) yield fell 4 basis points to 3.398% and the 5-year note (5_YEAR) yield dropped 4 basis points to 1.696%.

Jeffrey Lacker of the Richmond Federal Reserve Bank speaks at 1 p.m. Eastern and Narayana Kocherlakota of the Minneapolis Fed talks at 1:45 p.m. Eastern.

By Ben Eisen, MarketWatch