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U.S. Treasury yields rose in a largely range-bound session as investors held off taking significant bets ahead of the expected reduction of the Federal Reserve’s balance sheet next month and a debt auction later on Tuesday.

Trading was thin overall as the market gets into the thick of the summer months, with activity in Japan, whose central bank is the largest non-U.S. holder of Treasuries, shut down next week for holidays.

“The market doesn’t feel like it wants to stray too far from the current levels across the curve,” said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York. “When you look at 10s (U.S. 10-year notes), it has been closing within 7-8 basis points over the last 20 sessions.”

Investors are awaiting key events in the market such as the start of the unwinding of the Fed’s balance sheet in September after a prolonged period of quantitative easing.

Some analysts said the impending balance sheet reduction has diminished the need to raise interest rates again this year as the U.S. economy grapples with persistently low inflation.

On Tuesday, the futures market was pricing in a 50 percent chance of a U.S. interest rate increase in December, with a hike fully priced in by mid-2018, according to the CME’s FedWatch. The Fed has raised rates twice this year.

Investors are also looking to the $24 billion U.S. three-year note auction later on Tuesday, with analysts expecting decent demand.

“Foreign investors’ takedown for front-ends has been climbing recently and foreign central banks’ U.S. Treasury custodian holdings have also been increasing, and both may help the 3-year takedown,” Nomura Securities said in a research note.

The Japanese firm views Tuesday’s U.S. three-year note auction as a “litmus test” of investor appetite for short-dated securities.

In late morning trading, U.S. 10-year yields rose to 2.281 percent from 2.257 percent late on Monday.

U.S. 30-year bonds yielded 2.862 percent, up from 2.837 percent the previous day.

Ahead of the auction, U.S. three-year yields were at 1.521 percent, up from Monday’s 1.505 percent.

The U.S. yield curve continued to steepen for a third straight session on Tuesday, with the spread between the five-year and 30-year rising to 102.6 basis points .

Overall, a steeper yield curve suggests investors may finally be pricing in some inflation, especially after last week’s U.S. nonfarm payrolls report showed a rise in wage growth in July.