NEW YORK -- U.S. Treasuries prices erased early losses and turned higher by late morning Tuesday after another credit-related story revived the safety bid for U.S. government debt.

Trustees for two Canadian trusts said they were unable to issue new securities to repay maturing commercial paper and that a bank had declined to provide liquidity. The news followed word from a specialized investment firm that "market disruption" meant that some of its trusts could not fund maturities of Canadian asset-backed commercial paper.

Meanwhile, credit rating agency DBRS said it was aware of Canadian issuers that had sought funding under market-disruption liquidity facilities, but it did not yet know if they had received the funding requested.

Andrew Brenner, analyst at MAN Financial Inc, said there were reports "asset-backed commercial paper issuers are seeking back-up financing from banks after failing to sell short-term debt and this is putting a bid into the Treasury market."

In late morning trade, two-year Treasury note prices had erased losses and were up 2/32, their yields at 4.39 percent.

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Benchmark 10-year notes erased their losses and were up 9/32 in price, their yields at 4.73 percent, down from 4.77 percent Monday. Bond prices and yields move inversely.

Federal funds eased to 5 percent in mid-morning trade, below the Fed's 5.25 percent target for the rate.

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