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Bonds drop on housing data; Russia fears clamp yields

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Prices on long-term U.S. Treasurys fell on Monday with investors feeling comfortable embracing riskier assets as upbeat U.S. housing numbers strengthened the view that the world's largest economy was steadily recovering.

But long Treasuries pared losses, with medium-term U.S. debt prices turning positive, as the Nasdaq index fell. The ongoing political tension between Russia and Ukraine has also kept a cap on long bond yields.

Yields on U.S. 30-year bonds rose after four days of losses. On Friday, long bond yields fell to their lowest in more than nine months after Russia unexpectedly raised interest rates just hours after the S&P downgraded the country's credit rating.

Benchmark U.S. 10-year yields also inched higher after three days of losses.

U.S. pending home sales for March, which rose for the first time in nine months, undermined Treasuries. The National Association of Realtors said its Pending Home Sales Index, based on contracts signed last month, was up 3.4 percent at 97.4. The increase beat economists' expectations for a 1.0 percent advance.

"With this report, housing may start catching up with the other positive data we have been seeing," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York.

In afternoon trading, the benchmark 10-year U.S. Treasury note was down 10/32 in price to yield 2.70 percent, up from 2.66 percent late Friday. Prices of 30-year Treasury bonds fell 22/32 to yield 3.48 percent, compared with 3.44 percent the previous session.

The five-year note, meanwhile, dropped 2/32 in price to yield of 1.74 percent.

"The market generally has had a good tone the past several weeks. It's fairly healthy to see this occasional selloff, because it does remind investors that there is some risk in owning Treasuries," said Aaron Kohli, interest rate strategist at BNP Paribas in New York.

But he added that Treasurys have positive momentum going forward, especially because of geopolitical worries involving Russia.

Read More CNBC explains: Treasury bond prices and yields

The United States on Monday imposed sanctions against seven Russian government officials and 17 companies linked to Russian President Vladimir Putin in the latest U.S. action to punish Moscow for its intervention in Ukraine.

The news did help Treasurys a little, but bids were short-lived, and the market was back to where it was before the new sanctions were announced.

"I think rates are having a hard time holding losses," BNP's Kohli said. "The reason for that is partly bad positioning. Others who got there early, loaded up on rates early in the year and now there's some positioning clean-up that needs to be done."

Many market participants believe the uptrend for Treasurys remained intact, and some did not expect a strong performance, especially after the U.S. Federal Reserve started tapering its bond purchases.

BNP's Kohli said returns on U.S. Treasurys were 1.3 percent so far this year.

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