U.S. Treasury bonds were steady in overnight trading heading into what could a key auction of new 10-year notes that falls just ahead of August inflation data as well as myriad challenges for the government’s borrowing effort.

The Treasury will see $35 billion in re-opened 10-year notes this morning as part of the government’s quarterly funding effort, which aims to raise around $103 billion by the end of September. Demand in today’s auction, which falls less than 24 hours ahead of the Commerce’s Department’s August inflation report, could prove crucial for broader market sentiment over the coming weeks.

Benchmark 10-year note yields were marked 2 basis points lower from Monday levels at 4.276% heading into the session, while 2-year notes held at 4.993%

Last month, investors bid $2.56 for every $1 of 10-year notes on offer from the Treasury while foreign buyers took up 72.2% of the $38 billion sale, down from the 79.5% figure reported in July, but firmly ahead of the near-term average of around 67.7%, even in the wake of Fitch Rating’s controversial U.S. credit downgrade.

A $44 billion sale of 3-year notes yesterday, in fact, drew the weakest foreign demand since October of last year. 

Tuesday’s sale, however, also comes with the overhang of looming government shutdown, as funding for its operations technically comes to a halt on September 30 and lawmakers have yet to agree an extension amid a partisan battle over spending cuts. 

Demand may also be tested by recent developments in Japan, where investors hold more U.S. Treasury bonds than in any other foreign market. New Bank of Japan Governor Kazuo Ueda, who recently widened the band on Japanese government bond yields (making them more attractive to domestic investors).

Ueda has also suggested he could abandon a policy of negative rates in the coming year, providing further impetus for Japanese buyers to dump Treasuries and buy domestic bonds.