Prices for U.S. Treasurys prices slid on Tuesday as investors scooped up riskier assets, such as stocks, instead of safe-haven government debt ahead of jobs data later in the week.
The S&P 500 stock index pushed to within striking distance of its all-time intraday high of 1,576.09, with the influential U.S. non-farm payrolls report for March due Friday.
While analysts in a Reuters poll see 200,000 jobs added, the unemployment rate is expected to hold steady at 7.7 percent - far enough from the Fed's desired 6.5 percent goal that policymakers are unlikely to change their accommodative stance.
"It's a risk-on move, and we can see that in the equity market gains and in the continued desire to invest in corporate credit and high-yield bonds," Matthew Duch, portfolio manager at Calvert Investment Management, Inc. in Bethesda, Maryland, said of Tuesday's price moves.
Ten-year notes slipped 8/32, pushing yields to 1.861 percent from 1.84 percent on Monday.
But even if the jobs data is stronger than expected, yields are unlikely to push above 2 percent, said Robert Tipp, chief investment strategist at Prudential Fixed Income.
"I don't think there's that much scope for U.S. rates to rise," he said.
When yields hit 2 percent earlier this year, he said, "they were really sticking out as cheap, particularly in the international context."
International worries, in fact, have helped underpin the bid for bonds' safety. With the chaotic bailout for Cyprus leaving investors rattled recently and still-high unemployment rates in the euro zone, U.S. Treasurys prices have remained rangebound in recent weeks, even as U.S. economic data suggests a gathering recovery.
Among improving U.S. indicators are job market data. Markets will get a first look at labor for March with the release on Wednesday of data on private-sector hiring by payrolls processor ADP.
Still, the U.S. Federal Reserve is likely to continue its easy monetary policy as the scenario abroad stays worrisome, analysts say.
The Federal Reserve is now buying $85 billion of mortgage-backed securities and U.S. government debt per month.
That policy is supportive for U.S. debt, but even more bullish for the riskier assets like stocks, Duch said.
"The expectation is for the unemployment rate to be steady or fall slowly over time," Duch said. "We're not going to see any dramatic surprises that will cause the Fed to tone down what it's doing right now because it's more about the trend as a whole. Even as the U.S. economy improves, the Fed is worried about overseas events affecting our situation here."
Nevertheless, the Fed could reduce its bond-buying program before the end of the year if economic growth continues to pick up and employment improves further, Dennis Lockhart, president of the Atlanta Fed, said on Tuesday.
The Fed bought $1.575 billion in Treasury coupons maturing between February 2036 and February 2043Also on Tuesday.