French banks, among the most exposed to the Greek debt crisis, have reached an outline agreement to roll over holdings of maturing Greek bonds as part of a wider European plan to avoid sovereign default.

"Going into the weekend, concerns about Greek debt problems prompted investors to buy Treasuries as a hedge against unexpected bad news out of Europe," said Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis.

"But no new bad news came out of Europe over the weekend so some of the flight-to-safety bid came out of Treasuries."

Selling hit the entire yield curve, but long bonds in particular took it on the chin.

Thirty-year bonds tumbled 27/32 in price, bringing the 30-year yield up to 4.24 percent from 4.19 percent at Friday's close.

The selling in the 30-year bond caused the yield curve to steepen, prompting traders to unwind curve-flattening trades and exacerbating the drop in Treasury prices.

Elsewhere along the curve, traders tried to push two-year note prices lower to attract more bidders for Monday's two-year note auction.

The two-year note dipped 2/32 and yielded 0.37 percent against 0.34 percent late Friday. The two-year note's price has climbed for the last 11 weeks.

The benchmark 10-year Treasury note slipped 4/32 in price and its yield rose to 2.88 percent from Friday's 2.87 percent.

The two-year note auction is the first of three this week totaling $99 billion in new debt sales. Auctions of $35 billion in five-year notes and $29 billion in seven-year notes are set for Tuesday and Wednesday, respectively.

The five-year note declined 5/32 in price and yielded 1.41 percent, up from 1.38 percent late on Friday, while the seven-year note shed 2/32 to yield 2.13 percent, up from 2.12 percent late on Friday.

COPYRIGHT REUTERS, 2011