Treasury debt prices fell Monday as lower oil prices helped boost stocks and undermined any safe-haven bidding for government debt.
Debt traders were also moving to cash in on recent gains.
The action was a reversal of Friday when bonds rallied in tandem with a sharp stock sell-off triggered as oil prices soared to a record and the level of unemployment jumped significantly.
"The moderation in oil and the rebound in stocks is hurting the risk-aversion bid," said Matthew Moore, economic strategist at Banc of America Securities in New York.
Benchmark 10-year Treasury notes were trading 23/32 lower in price for a yield of 4.02 percent from 3.93 percent late Friday, while 2-year Treasury notes were trading 15/32 lower for a yield of 2.63 percent from 2.39 percent.
Bonds were also undermined by news that Lehman Brothers planned to raise $6 billion to boost its capital base and said it expects to post a $2.77 billion second-quarter loss.
While the news was not exactly great for Lehman, it cheered some investors who felt the worst may be over for the investment bank, which has been the subject of speculation that it was struggling in a manner similar to former rival Bear Stearns. The company's stock price was down Monday.
"The Lehman news ... is also motivating some profit-taking (in bonds) with some folks thinking that while the rumors were relatively true, some of this stuff is behind us now," said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. "It's buy the rumor and sell the facts."
Bonds extended losses Monday morning after data showing a surprise rise in pending home sales in April, which investors saw as a possible sign that the worst might be over for the struggling U.S. homes market.
Also weighing on Treasurys this week is the pending auction of $11 billion of reopened 10-year Treasury notes Thursday. Traders often try and cheapen bond prices ahead of such an auction.
Aggressive selling of shorter-dated bonds Monday helped flatten the Treasury curve, with the spread between the yield on 2-year notes and 10-year notes narrowing to 140 basis points from 154 basis points late Friday.
Little in the way of significant economic data was slated for Monday, although several Federal Reserve officials will speak, including Chairman Ben Bernanke on "Outstanding Issues in the Analysis of Inflation" Monday evening.
Five-year Treasury notes were trading 24/32 lower in price for a yield of 3.36 percent from 3.19 percent late Friday, while the 30-year bond was trading 21/32 lower for a yield of 4.67 percent from 4.63 percent.