Most U.S. Treasury prices were flat on Monday after solid U.S. economic data overcame earlier strength, as fighting in Iraq and Ukraine increased demand for safe-haven bonds.
Benchmark 10-year notes were last up 3/32 in price to yield 2.60 percent, after earlier falling as low as 2.58 percent. Thirty-year bonds gained 12/32 in price to yield 3.40 percent, after earlier falling to 3.35 percent.
Longer-dated bonds rallied even as shorter-dated debt was moderately weaker, on concerns that central banks may be closer to raising interest rates than some expect.
U.S. manufacturing output rose solidly in May as production increased across the board, bolstering expectations that economic growth will rebound strongly this quarter.
That erased an earlier safety bid as worries about Iraq intensified on the news that Sunni insurgents seized a city in northwestern Iraq on Sunday after heavy fighting, solidifying their grip on the north after a lightning offensive that threatens to dismember Iraq.
Russian natural gas exporter Gazprom also reduced supplies to Ukraine on Monday after Kiev failed to meet a deadline to pay off its gas debts in a dispute that could disrupt supplies to the rest of Europe.
"There was a reasonable flight-to-quality bid overnight with the developments in Iraq and Gazprom, so global equities were under a fair amount of pressure and that gave a bid to longer-dated Treasuries,'' said Ian Lyngen, senior government bond trader at CRT Capital in Stamford, Connecticut.
"We've given some of that up in the wake of the industrial production numbers,'' Lyngen added.
A gauge of manufacturing in New York state also rose in June, while confidence among U.S. homebuilders rose for the first time this year.
Bank of England Governor Mark Carney surprised markets last Thursday when he said that Britain could become the first major economy to tighten monetary policy since the 2008 financial crisis.
The yield curve between five-year notes and 30-year bonds flattened to a new five-year low of 165 basis points overnight.
Investors this week are next focused on the Federal Reserve's monetary policy statement on Wednesday, when the U.S. central bank is expected to announce it will continue paring its bond purchase program and cut its growth projections.
"They will downgrade their growth expectations, but they will shift their unemployment rate projections lower because the unemployment rate has gone down faster than expected, so that should be fairly positive,'' said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
The Fed bought $2.70 billion in notes due in 2018 and 2019 on Monday as part of its ongoing purchases. It will purchase between $0.85 billion and $1.10 billion in bonds due 2036 to 2044 on Tuesday.