U.S. longer-dated government debt prices fell on Monday a day before the Federal Reserve meets for a two-day policy meeting on concerns the central bank might be moving closer to announcing it will trim bond purchases, though trade was volatile and volume was light.
Markets have been on edge since Fed Chairman Ben Bernanke told a congressional hearing some three weeks ago that a decision on whether the central bank will pare its $85 billion monthly purchases of Treasurys and mortgage-backed securities could occur "in the next few meetings" if the economy showed further improvement.
Such a move on the Fed's stimulus program—its third round of quantitative easing, or QE3—was earlier than what some traders had thought and has whipped up fears interest rate increases would follow soon after the Fed stops buying bonds.
(Read More: Markets May Be Overpricing Risk of Fed Tapering)
The anxiety about a sooner-than-expected shift in the Fed's policy path roiled financial markets in recent weeks, which had been buoyed by bets the central bank would stay pat with its ultra-loose policy stand at least through early 2015.
Wall Street stocks fell from their record peaks, while the benchmark 10-year Treasury yield rose 46 basis points in May, its biggest one-month jump in nearly 2-1/2 years, according to Reuters data.
An article in the Financial Times on Monday advancing the view that the Fed would taper purchases this year accelerated selling of Treasurys as traders grew increasingly jumpy ahead of the Fed's meeting.
"The game is changing now with a very quick unwind in the bond market and a levered stock market," said Howard Simons, a strategist with Bianco Research in Chicago.