Hedge funds have been snapping up U.S. government debt, with new data showing large speculators have been "aggressively" buying 10 year Treasurys in the last week.
According to data from Bank of America Merrill Lynch (BofAML), hedge funds bought 10-year Treasurys to a net long position of $1.8 billion in the week ending July 22, overturning the net short position of $4.7 billion in the previous week.
That move followed a rout in U.S. government bonds in June and early July after the Federal Reserve signaled it would ease up on its bond-buying program later this year, if the economy kept improving.
Bond funds saw record outflows in June but Pimco's Bill Gross, manager of the world's largest bond fund, said he was keeping faith with Treasurys and urged other investors not to "jump ship" on U.S. government debt.
(Read more: Pimco's Gross: Don't Jump Ship on Treasurys Now)
Now it seems some hedge funds are heeding his advice as they step back in and buy.
Weaker than expected data recently have also helped ease worries that the Federal Reserve will "taper" its monetary easing over the next few months. Yields on the 10 year bond have fallen to 2.49 percent on Tuesday from 2.76 percent on July 8.
(Read more: Bill Gross says, time to buy 5-7 year Treasurys)
"I think the market is still expecting September to bring about some tapering, but not the magnitude that was expected a couple of weeks ago. The market was expecting a reduction of $20 billion in September, now the expectations are closer to $5-$10 billion," Jason Rogan, director of U.S. government bond trading at Guggenheim Partners told CNBC.
"One data point seems to be the driver for the entire market for the following 24 to 48 hours until another data point comes out. Retail sales are a case in point – it was weaker than expected but it wasn't the worst we have ever seen," Rogan said, referring to last week's release of retail sales for June.
"We still saw an instantaneous rally in the market just based on the one economic data point," he added.
According to BofAML, bond prices will remain under pressure, pushing yields on the 10-year Treasury to between 2.857 and 2.951 percent over the longer-term. Bond yields and prices move in inverse.
(Read More: Bernanke: Fed to begin tapering purchases later this year)
But, Guggenheim's Rogan said economic indicators would need to "pick up real steam" in order for yields to reach those levels. "Right now, we are so data dependant, that I think it is difficult to see us getting there without a reversal of the data which is leaning on the weak side," he said.
—By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave
