U.S. government debt prices were flat on Monday in advance of this week's $99 billion in coupon-bearing supply, as uneven gains in the stock market offset worries about the domestic economy losing momentum.
News of an unexpected 0.6 percent drop in existing home sales in March added to worries from disappointing quarterly results from Caterpillar and other large companies. The news pushed benchmark yields closer to the four-month low set a week ago during a safe-haven rally, when gold prices suffered their biggest one-day loss in 30 years.
"The market is ambivalent. It doesn't know where to go," said Robbert Van Batenburg, director of market strategy at Newedge USA LLC in New York. "What's really robust lately has been Treasurys."
The Treasurys market succumbed to selling earlier in the session after the re-election of Italian President Giorgio Napolitano. The news raised hopes of the formation of a new government that could solve the fiscal woes that have undermined investors' confidence in the region.
Bets on a functioning Italian parliament after last month's election helped lift European stock prices and reduce the yield on 10-year Italian government debt. Investors also pared bids for safe-haven U.S. bonds.
The early selling in Treasurys was short-lived as the drop in prices drew bids from bargain-minded investors in New York trading. The buying tapered off as the 10-year yield encountered technical resistance in the 1.67 percent area, analysts said.
"We already had a tremendous move in rates in the last few weeks," Newedge's Van Batenburg said. "We will probably grind to new lows for the year but it will take some time."
Bond prices were also supported by the Federal Reserve's regular purchases of debt in its effort to support the economic recovery that has remained weaker-than-expected.
The U.S. central bank bought $3.728 billion in Treasurys that mature in January 2019 to March 2020.
As the Fed has tripled its balance sheet since it embarked on quantitative easing four years ago, the U.S. government has continued to borrow heavily to finance its budget deficit, whose size, while declining, still worries investors.
The U.S. Treasury will auction $35 billion in two-year notes on Tuesday; $35 billion in five-year debt on Wednesday and $29 billion in seven-year notes on Thursday.
On the open market, benchmark 10-year Treasury notes were 1/32 higher at 102-22/32 on below-average volume, yielding 1.701 percent, about 3 basis points from the four-month low.
Treasury Inflation-Protected Securities improved for a second straight session after last week's dramatic sell-off on speculation of growing disinflation risk as the economy showed signs of faltering.
The spread between 10-year TIPS yields and regular 10-year Treasury yields expanded to 2.34 percentage points after falling to 2.28 points on Thursday, which was its tightest level since August.
The spread between "real" yields on TIPS and yields on nominal Treasurys gauges investors' inflation expectations, which the Fed monitors closely.
Wall Street stocks were mixed after opening modestly higher. The Standard & Poor's 500 index was up 0.14 percent in midday trading.