Treasury Yields Retreat as Cyprus Stays in Focus

Junk or Jewels? The Lowdown on High-Yield Bonds
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Prices for U.S. Treasurys climbed on Tuesday, as investors awaited a parliamentary vote in Cyprus on a bailout plan crucial to avert bankruptcy.

Euro zone finance ministers want to tap Cyprus' savers for the country to receive a 10-billion-euro ($13 billion) bailout, which triggered a run on bank deposits after its announcement on Saturday morning.

Cypriot ministers scrambled to revise the plan on Monday to try to increase the chance of passage by lawmakers, postponing a parliamentary vote until Tuesday and prolonging the uncertainty for investors.

Benchmark 10-year Treasurys last traded up 6/32 in price to yield 2.023 percent, after falling to as low as 1.90 percent. Monday's yield hits its lowest since March 6.

Thirty-year bonds gained 15/32 in price to yield 3.221 percent, with yields falling as low as 3.12 percent overnight.

On Monday, demand for safe-haven bonds, including Treasurys, was seen as exacerbated by hedge funds and other leveraged investors looking to cover exposure to risky European assets including sovereign debt such as that of Italy and Spain, which weakened on the Cyprus news.

Investors were also focused on whether the move will make it more likely that policymakers will consider forcing losses on other investors including bank bondholders, which has formerly been considered taboo.

Some analysts, however, saw most of the Treasurys rally as being exhausted by mid-morning, unless there are signs of contagion from Cyprus into the euro zone.

(Read More: Cyprus Bailout 'Disaster' Risks New Euro Crisis)

Investors are also looking to a Federal Reserve meeting on Tuesday and Wednesday, watchful for any signs Fed Chairman Ben Bernanke may consider tapering or ending bond purchases after recent data have pointed to an improving U.S. economy.

Most Wall Street economists expect that the Fed will continue its bond purchases through 2013, before tapering or ending the buybacks in 2014.

The Fed bought $1.46 billion in bonds due 2036 to 2043 on Monday as part of its ongoing Treasurys purchase program.