U.S. Treasurys yields rose on Monday as stocks gained and better-than-expected retail sales data boosted expectations that economic growth is picking up after months of weakness blamed in part on bad weather.
Investors are focused on a busy week of data releases for signs on the strength of the economy as the Federal Reserve pares its bond purchases and look toward interest rate hikes that most expect to begin next year. Yields hit session highs on Monday after U.S. retail sales recorded their largest gain in 1-1/2 years in March.
Retail signs account for a third of consumer spending. The data showed that growth is recovering from weather-related weakness, said Ian Lyngen, an interest rate strategist at CRT Capital in Greenwich, Connecticut. "It gave a boost to stocks and weighed on Treasuries," he said.
Benchmark 10-year notes were last down 4/32 in price to yield 2.64 percent, after dropping to a 1-1/2-month low of 2.60 percent in overnight trading.
Treasurys yields dropped on safety buying last week after investors nervous over the valuations of some companies fled stocks and sought out lower-risk investments.
Overnight buying sparked by tensions in Ukraine also helped bonds rally before the U.S. session began. Ukraine's president threatened military action after pro-Russian separatists occupying government buildings in the east ignored an ultimatum to leave and another group of rebels attacked a police headquarters in the region.
But the safety buying ebbed in U.S. trading on Monday, with earnings from Citigroup helping sentiment after the bank said its quarterly net profit rose on a smaller loss on its troubled assets.
Economic data releases including consumer price inflation on Tuesday and several manufacturing surveys will be in focus for further signs of economic strength this week.
Fed Chair Janet Yellen is due to speak on Tuesday at a markets conference and on Wednesday at an economic event. Inflation has been running below the Fed's 2 percent target, which may make it difficult for the U.S. central bank to increase rates if price pressures don't increase, as many Fed officials say they continue to expect.
"So far the mantra from the Fed is that it will improve 'soon.' I think at some point that 'soon' will run out," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York. "It's a huge problem for the Fed." U.S. inflation-linked bonds have been among the worst performers since the Fed last year indicated that it would begin tapering its bond purchases, with investors worrying over what catalyst will lead inflation higher.
Demand for inflation-linked debt will also be tested this week when the Treasury on Thursday sells $18 billion in five-year Treasury inflation-protected securities (TIPS). The sale will come before an early market close on Thursday and the closure of the bond market the following day for the Good Friday holiday.
The Fed bought $1.02 billion in bonds due between 2036 and 2044 on Monday as part of its ongoing purchases.