The selling in US government debt was light, as traders wait to see whether European leaders can deliver a sweeping solution that would stop the fiscal woes among weaker euro zone nations from spiraling into a global crisis.
"There is some optimism out there that the events this week could lead to something big," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.
The improved outlook caused investors to move back into stocks from bonds and strengthened the euro.
French President Nicolas Sarkozy and German Chancellor Angela Merkel metMonday in advance of a European Union summit on Friday. Leaders of the euro zone's two biggest economies agreed on a series of reforms to the euro zone's debt issue, and they will be presented to European Union President Herman Van Rompuy on Wednesday.
The agreement involves a system of more coercive discipline for euro zone governments that fail to keep their budgets under control, which would require a change to the EU treaty.
Other key market events include results of the European Central Bank's tender on three-month dollars on Wednesday, followed by an ECB policy meeting on Thursday.