Government debt prices rose on Tuesday as worries about contagion over the deterioration of Spain's banking system stoked demand for bonds and other low-risk investments.
A rebound in global stock markets on hopes of more stimulus from China and the latest Greek polls showing pro-bailout parties were in the lead ahead of next month's elections curbed the modest gains in Treasuries, analysts said.
"It's mostly how you solve the Spanish bank problem so there's a bit of safe-haven buying," said David Keeble, global head of interest rates strategy at Credit Agricole Corporate & Investment Banking in New York.
Spanish 10-year yields jumped to 6.53 percent on Monday, their highest since November 2011, as the euro zone's fourth-biggest economy seemed prepared to use more public debt to recapitalize its ailing banks. The resurgence in the government's borrowing costs would make its refinancing efforts even more difficult.
Concerns that Spain's financial woes could deepen the euro-zone debt crisis led some investors to beef up their Treasuries holdings, whose yields are hovering near historic lows.
On below-average volume, benchmark 10-year Treasury notes were trading in a narrow range. They were last up 4/32 in price at 100-5/32, yielding 1.73 percent, down about 1 basis point from Friday.
The 10-year yield is within striking distance of 1.67 percent, which was the lowest level in at least 60 years.
June 10-year T-note futures were last up 3/32 at 133-28/32 after setting a contract high at 134.
U.S. financial markets were closed on Monday for the Memorial Day holiday.
Treasuries prices pulled back from their initial highs after a news report, citing unidentified sources, that China's biggest banks appeared to have increased lending toward the end of this month as Beijing starts to fast-track its approval of infrastructure investments in a bid to stem slowing growth.
Investors were also encouraged by weekend polls in Greece that showed the conservative New Democracy party, which backs the country's international bailout, has a lead over the leftist SYRIZA party, which opposes it ahead of a June 17 election.
In the United States, economic data suggested the U.S. economy continues to muddle along with ongoing support from the Federal Reserve.
U.S. consumer confidence unexpectedly fell to its lowest level in four months in May on renewed worries about the economy, according to the Conference Board.
However, an S&P/Case Shiller report said average home prices in 20 major U.S. cities edged up 0.1 percent in March, shaving their year-on-year decline to 2.6 percent.
While the housing market remains stagnant and the three-year-old euro-zone debt crisis still poses a threat to the U.S. economy, expectations remain strong that the U.S. central bank will embark on a third round of large-scale bond purchases, dubbed QE3.
The Fed's $400 billion Operation Twist is scheduled to expire at the end of June. This program involves sales of the Fed's shorter-dated Treasuries from its portfolio and its purchases of longer-dated government debt in the open market. It is aimed at holding down mortgage rates and other long-term borrowing costs in an effort to stimulate borrowing.
It is set to sell $8.00 billion to $8.75 billion of Treasuries with maturities range from June 2014 to May 2015 at 11 a.m. (1500 GMT).
