The benchmark 10-year Treasury note fell one full point in price Tuesday, as rising stocks curbed the safe haven appeal of U.S. government bonds, traders said.
A report showing a slight, unexpected improvement in home-builder sentiment in February was one factor boosting stocks, traders said.
The benchmark 10-year note's price -- which moves inversely to its yield -- fell 32/32 for a yield of 3.89 percent.
Longer-dated maturities were hardest hit as the market returned from Monday's holiday, and analysts said traders subsequently took profits on the curve-steepening trade.
Traders cited worry that the Federal Reserve's aggressive interest rate cuts to combat possible recession might stoke inflation pressures as a reason for the initial pressure on long-dated Treasurys.
"A lot of what has gone on today has been playing catch-up with yesterday's global markets because US markets were out for the day," said John Canavan, analyst at Stone and McCarthy Research Associates in Princeton, N.J. "You had a gap open lower in Treasurys and a gap higher in stock index futures and the markets are still digesting that."
While selling of long-dated securities was a factor overnight, it abated once US-based trading began and traders took some profits on the curve-steepening trade, Canavan said.
The two-year note yield , which briefly dipped to around 1.83 percent on Friday, the lowest since May 2004, rose to 1.96 percent Tuesday. US financial markets were closed on Monday for Presidents Day.
Even another multibillion dollar write-down by a major global investment bank failed to spur a safe-haven bid for government debt.
Credit Suisse revealed it has written $2.85 billion off the value of its asset-backed investments and found pricing errors on its books.
"While such stories argue for the continuation of the curve-steepening trade and a safe-haven need for Treasurys, that's also priced in to a fairly large extent and the latest revelations were not surprising enough to cause any shift in the market's mind-set," Canavan said.
The highlight of the economic data calendar is the National Association of Home Builders report on the February reading of its housing market index at 1 p.m. Economists forecast the gauge held steady at 19 for a second month. In December, the index hit a lifetime low at 18.
Sean Murphy, Treasury trader with RBC Capital Markets in New York, said Treasuries were "in a consolidation phase," with investors taking profits.
Bond market participants are looking for more clues about the Fed's view of the economy from the Jan. 29-30 policy-setting meeting minutes, due on Wednesday, Murphy said.
He added that the Fed's agenda clearly is "to go on cutting rates in an effort to revive the weakening economy."