By Karen Brettell

(Reuters) -U.S. Treasury yields rose on Wednesday after the Treasury Department saw soft demand for a $42 billion sale of 10-year notes and as companies rushed to sell debt as risk appetite improved.

Supply is the main focus this week as traders wait on fresh economic data for further clues on the strength of the U.S. economy.

Yields tumbled to more than one-year lows after Friday’s employment report for July showed an unexpected increase in the unemployment rate, while jobs gains also came in below economists’ forecasts, raising fears of an imminent recession.

Tumbling stock markets partly blamed by traders unwinding popular dollar/yen carry trades, in which they sold the Japanese currency and bought U.S. assets, added to demand for safe haven U.S. debt.

This demand has since ebbed as stocks move higher, but Treasury yields remain well below where they have recently traded, which was seen as denting interest in Wednesday's debt auction.

The 10-year notes sold at a high yield of 3.96%, 3 basis points above where they traded before the sale. Demand was 2.32 times the amount of debt on offer, the weakest since December 2022.

"Investors just weren't willing to pay up for sub-4% 10s," said Vail Hartman, U.S. rates strategist at BMO Capital Markets in New York. "This suggests this move may still have a little bit further to run before dip buyers reemerge in a more meaningful way."

Heavy corporate debt issuance also pushed yields higher.

“You have a lot of issuers who paused on Monday and even maybe held back yesterday just to make sure the coast was clear in terms of how risk assets are going to be received and now are coming to market today,” said Michael Lorizio, senior fixed income trader at Manulife Investment Management in Boston.