US Treasury prices backed off early highs on Monday as worries the Bank of Japan might slow massive purchases of dollar in the foreign exchange market tempered initial safe-haven buying of bonds.
The early rally in bonds was curbed by jitters that reduced Japanese intervention would reduce the BoJ's massive appetite for Treasuries as a place to stash intervention proceeds, which has been central to keeping US yields low in the past year.
A Nikkei report said the BoJ was mulling an end to large-scale intervention by the end of March. That was enough to offset flows from swooning equity markets and keep the session's gains at a minimum.
Foreign interest in US assets remains solid, with a US Treasury Department report released on Monday showing foreigners' net purchases of US Treasuries rose to a record $46.9 billion in January from $29.8 billion in December.
But such demand could taper off if a strong greenback cuts off the supply of dollars that Asian central banks have funnelled into US government debt.
"The fear is that if (BoJ) stop buying Treasuries, rates are going to rise because you have one large buyer who is now totally absent or at least present to a much smaller degree," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle, Wash.
Benchmark 10-year notes were last up 6/32 in price for a yield of 3.76 percent after touching an eight-month low of 3.68 percent last week.
The 30-year bond added 6/32, leaving yields at 4.71 percent from 4.72 percent on Friday. The five-year note edged up 1/32, taking yields to 2.73 percent from 2.74 percent.
At the very short end, yields on the two-year note inched up to 1.53 percent from 1.52 percent.
Prices had already slipped from their highs after figures on US industrial production proved stronger than expected, countering a soft survey on regional US manufacturing.
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