The U.S. 30-year Treasury bond extended its gain to a point on Monday afternoon as higher yields and a modest stock market retreat from five-year highs drew buyers.
Last week's sell-off in Treasurys was "overdone," said Sharon Stark, chief fixed-income strategist at D.A. Davidson in St. Petersburg, Florida. "Two-percent (yield) is a good buying opportunity for most investors.''
Through Friday, Treasurys prices suffered their second weekly decline on an improved outlook for the U.S. economy and less anxiety about the festering fiscal problems in Europe.
Cautious investor optimism, which pushed the Dow Jones industrial average above 14,000 for the first time since October 2007 on Friday, was challenged over the weekend.
Worries about possible political shake-ups in Europe and their effect on the region's fiscal problems resurfaced, although initially they did not cause knee-jerk safe-haven buying of low-risk government debt.
They did cause steady weakness in Italian, Spanish and other government debt in peripheral euro zone nations. This eventually revived safe-haven buying of German Bunds, spilling over to the Treasurys market, analysts said.
"The market stabilized on these news from Europe," said Thomas Roth, executive director of U.S. government bond trading at Mitsubishi UFJ Securities USA in New York. Spain's opposition party on Sunday called for the resignation of Prime Minister Mariano Rajoy over a corruption scandal, as Rajoy sought to pull the euro zone's fourth-biggest economy out of five years of financial woes.
In Italy, the increased popularity of former prime minister Silvio Berlusconi and his chances of regaining power also raised worries about Italy's struggle to fix its fiscal problems. Benchmark 10-year U.S. Treasury notes were last 12/32 higher in price with a yield of 1.976 percent.
The 10-year U.S Treasury yield earlier climbed to 2.059 percent, its highest since last April 12 when it touched an intraday peak of 2.065 percent, according to Reuters data. The 30-year bond was last up 24/32 in price, yielding 3.179 percent.
The yield on 10-year Italian government notes rose 15 basis points near 4.50 percent, the highest since late December, while the yield on 10-year Spanish sovereign debt jumped a quarter point to 5.44 percent.
On Wall Street, the Dow was down 0.7 percent to below 14,000, while the Standard & Poor's 500 index was nearly 0.9 percent lower, hovering just above 1,500.
Other factors that could propel bond prices higher this week included the absence of new longer-dated government debt supply and regular bond purchases by the Federal Reserve aimed at supporting the economic recovery, traders and analysts said.
The U.S. central bank will buy $3.23 billion in Treasurys that mature between February 2020 and November 2022, part of its $44 billion purchase of Treasurys in February.
On the data front, a weaker-than-expected 1.8 percent increase in U.S. factory orders undercut hopes of a pickup in the economic recovery in the wake of Friday's payrolls report and survey on manufacturing activity.
Moreover, some analysts cautioned the lack of a deal in Washington to avert deep spending cuts set to kick in next month could be a drag on the U.S. economy. These cuts, which would total $112 billion in 2013, will likely hold bond yields at their current levels, they said.