Most U.S. Treasurys prices slipped into the minus column Monday as stocks cut their losses and the S&P 500 index turned higher, led by a sharp rebound in Lehman Brothersshares.
"The move in stocks was a significant aspect" for bonds' move down, said John Canavan, analyst at Stone and McCarthy Research Associates.
Two-year notes, which were battered last week, erased a small gain and were unchanged from Friday's closing level, their yield at 3.02 percent.
The benchmark 10-year Treasury note, which was up 9/32 earlier in the session, was down 2/32, yielding 4.27 percent, versus 4.26 percent on Friday and 3.93 percent a week prior to that.
Government bonds rose earlier after a week-long retreat cut prices enough to attract some buyers and the market entertained inklings of doubt about its recent view that the Federal Reserve would aggressively raise interest rates this year.
Encouraging those doubts was a Washington Post column by Robert Novak asserting that market speculation that the Fed was ready to raise interest rates appeared to be "dead wrong."
The column initially helped bond prices, said Andrew Brenner, analyst at MF Global in New York.
Last week, bond prices retreated as anti-inflation talk from the Fed persuaded the market that the central bank could raise interest rates two or three times before the end of the year to thwart any upward trend in inflation expectations.
An unexpectedly weak reading on the Federal Reserve Bank of New York's "Empire State" manufacturing index was also a plus for bond prices, he said, underscoring that the "economy is still weak," Brenner said.
The June Empire State manufacturing survey, one of the earliest monthly guideposts to U.S. factory conditions, showed its business conditions index fell to minus 8.68 from minus 3.23 in May and recorded declines in new orders, shipments and unfilled orders.
Most of the key components in the Empire State survey have been either in negative territory or just barely positive for most of 2008, noted Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities.
"The market, which was already higher, traded up just slightly and the yield curve got a little steeper on the drop in the Empire State index," said John Rocket Spinello, senior vice president and chief fixed-income technical strategist at Jefferies & Co.
Two-year notes, which were battered last week, rose 2/32, their yields at 3 percent versus 3.03 percent on Friday and 2.39 percent the previous Friday.
"Ten-year yields near 4.25-4.26 percent and the area between 4.28 percent and 4.30 percent will bring in some buyers and we'll see willing sellers at 4.17 percent," Spinello said.
"That could be the range for the day."