Prices of U.S. Treasuries were down slightly in choppy trading on Monday as traders awaited a possible interest rate increase by the Federal Reserve this week that would be the first in more than nine years.
The Fed's policy setting group, the Federal Open Market Committee, will begin a two-day meeting on Tuesday and is expected by investors to raise rates from near zero.
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"As we get closer to the (FOMC) meeting, the market is going to turn to the realization that rates aren't quite where they should be," said Bruno Braizinha, interest rates strategist at SG Corporate & Investment Banking in New York.
Yields retreated from multi-week lows reached on Friday, but losses were contained by scrutiny in the high-yield bond market after Third Avenue's high yield fund and credit fund Stone Lion Capital prevented investors from exiting, heightening anxiety in the sector, which is among the most vulnerable to higher U.S. rates.
"We're still seeing some of the credit fears that came out on Friday at play," said Ellis Phifer, market strategist at Raymond James in Memphis, Tennessee.
As oil prices steadied after falling to near 11-year lows, they limited price declines from Friday's gains in Treasuries. The slide in oil prices suggests inflation has remained subdued, boding well for the long-end of the curve, which is expected to outperform when the Fed raises interest rates.
Investors have almost fully priced in a rate increase this week and the debate has largely shifted to how many increases will follow in 2016.
U.S.10-year notes fell 25/32 in price to yield 2.2217 percent, up from 2.13 percent late on Friday. The 10-year yield dropped to a five-week low on Friday and posted its largest one-day fall since July.
The 30-year bond fell 1-19/32 in price to yield 2.9533 percent, up from 2.877 percent late on Friday. The 30-year bond's yield slid to a six-week low on Friday.
In a research note on Friday, Societe Generale said it expects the front-end of the Treasury curve to look "rather pegged" ahead of the Fed meeting, reflecting a market that has fully priced in a December liftoff.