Prices for U.S. Treasurys edged lower on Monday ahead of new supply later in the week, with investors extending a sell-off after better-than-expected jobs data on Friday.
Yields could stay high even as markets in Tokyo and London return on Tuesday from holidays, with investors preparing for $72 billion in debt sales starting Tuesday.
"The volume is so light that you get the impression that no one is interested in buying in front of supply at all," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
Investors "are particularly not interested until they can see what kind of reaction we get from all of overseas being open tonight and tomorrow," he added.
Friday's jobs gains caught traders off guard, as most were anticipating a gloomier jobs picture after other economic releases pointed towards more sluggish growth.
"There was a significant amount of buying and short covering and capitulation around month-end and prior to that number, with expectations having been lowered substantially going in," said Dan Mulholland, managing director in Treasurys trading at BNY Mellon in New York.
The positive jobs surprise, with employers adding 165,000 jobs in April and the U.S. jobless rate falling to 7.5 percent, the lowest since December 2008, left traders scrambling to cover long exposures and sent yields surging.
Benchmark 10-year Treasurys yielded 1.769 percent on Monday, up from 1.74 percent on Friday and up from 1.62 percent before the jobs data was released.
Thirty-year bonds yielded 2.985 percent on Monday, up from 2.96 percent late on Friday and up from 2.82 percent before the jobs report.
Despite Friday's jobs gains, many economic analysts believe that economic growth is still too slow and investors have pared back expectations that the Federal Reserve may taper or end bond purchases this year as inflation also slows.
That may hold yields down near historic lows for some time yet.
Data last week showed that the Fed's preferred gauge of consumer prices, the personal consumption index, slowed to 1.0 percent in March from 1.3 percent in February, the smallest gain in three and a half years.
Market inflation expectations as measured by forward contracts that show where traders think inflation will be in five years' time, also a closely watched indicator by the Fed, have also slipped. The contracts now show expectations of 2.77 percent, down from around 3 percent at the beginning of the year.
"It's possible that the Fed starts to focus on inflation as a reason to extend QE, rather than unemployment," said Carl Lantz, head of U.S. interest rate strategy at Credit Suisse in New York.
The Federal Reserve said on Wednesday it may increase or decrease bond purchases under its quantitative easing, or QE, program from its current $85 billion per month, depending on the strength of the economy and on inflation, though most see the Fed as more likely to keep buying for longer.
Before the recent slowdown in data most economists had expected the Fed would taper buying this year and end purchases at the end of the year.
The Fed bought $3.31 billion in notes due 2020 to 2023 on Monday as part of this program.
The relatively higher yields, meanwhile, are expected to help the Treasury sell $32 billion in three-year notes on Tuesday, $24 billion in 10-year notes on Wednesday and $16 billion in 30-year bonds on Thursday.
"May auctions are a particularly pivotal time historically for the market," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut.
"What tends to happen is in the wake of the May refunding the Treasury market shifts direction somewhat and we go into a prolonged bullish phase."
While that's not "prescriptive" this year, considering the gathering recovery in the world's biggest economy and still-low yields, "we will argue that that does counter any bearish momentum that we might otherwise have seen from firmer data," Lyngen added.