NEW YORK (MarketWatch) -- Treasury prices declined on Thursday amid concerns about bond investors' willingness to absorb $123 billion in government debt next week, a total that is slightly higher than analysts expected. "Expect the market to remain defensive with the deluge of supply into next week," said John Spinello, Treasury strategist at Jefferies & Co. Yields on 10-year notes (UST10Y 3.41, +0.02, +0.62%) which move inversely to prices, rose 3 basis points to 3.42%. A basis point is 0.01 percentage point. Two-year note yields (UST2YR 0.95, 0.00, -0.42%) increased 1 basis point to 0.96%. Treasurys briefly pared losses as yields reached levels that brought back in bargain hunters, said Thomas Di Galoma, head of U.S. rates trading at brokerage Guggenheim Capital Markets. Traders noted that 10-year notes tend to attract buyers when yields get near 3.50%. The government will auction $44 billion in 2-year notes and $41 billion in 5-year notes (UST5YR 2.35, +0.00, +0.17%) , making both sales $1 billion more than last month's offering, matching expectations. It will also auction $31 billion in 7-year debt and $7 billion in inflation-indexed securities. The amount of 7-year debt was $1 billion more than many bond analysts forecast and $2 billion more than last month's sale. The last time the government sold 5-year Treasury Inflation Indexed Securities, or TIPS, was in April. This sale will be a reopening of that sale, meaning the maturity and coupon remain the same. The amount is a little smaller than the original issue, as usual. While the majority of auctions over the last several months have received more-than-adequate demand, analyst of all stripes continue to fret about how long that may last as the economic picture turns brighter. With a continuous chorus of overseas investors -- who hold half of all outstanding Treasurys -- saying they may diversify from U.S. assets, more attention has been paid to the potential of other investors, including American households. See more on Americans' saving trends. Treasurys extended losses after the Labor Department said initial claims for jobless benefits rose 11,000 to 531,000 in the week ended Oct. 17. The median estimate of economists surveyed by MarketWatch was for claims to be 510,000. See more on jobless claims. "The week in question includes Columbus Day and the inclusion of a holiday always adds some volatility to the data," said Dan Greenhaus, chief economic strategist at Miller Tabak, in e-mailed comments. "While the move higher is complicating, it does not change the overall downward trend in claims." Treasurys pared some of the decline after the Federal Housing Finance Agency said U.S. home prices fell 0.3% in August compared with the month before, after rising for three months. An unexpected decline, the first since April, is a "meaningful development and consistent with questions of the sustainability of the stimulus-driven bounce in the housing market," said government-bond strategists at brokerage CRT Capital Group. Separately, the Conference Board reported its leading economic indicators rose 1% in September, more than anticipated.

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