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NEW YORK (CNN/Money) -
Longer-term Treasuries took the biggest losses Tuesday as stocks seemed set to advance on strong earnings.
The dollar continued losses against the euro and yen as markets looked ahead to Wednesday's May trade report, which could negatively affect US currency.
The benchmark 10-year note fell 13/32 of a point to 99 25/32, yielding 4.15 percent, up from 4.09 late Monday. The 30-year bond lost 25/32 of a point to 115-1/32 to yield 4.39 percent, up from 4.34 the previous session. Treasury prices and yields move in opposite directions.
In shorter-dated government debt, the five-year note fell 5/32 of a point to yield 3.94 percent, and the two-year note fell 2/32 of a point to yield 3.83.
Treasuries inched lower amid rising stock futures as traders worried that a three-month bond rally was coming to an end.
Stocks had gained in the previous session and analyst forecasts called for a week of positive earnings, which would likely lure buyers away from safe-haven investments.
Moreover, the Fed has raised short-term interest rates at its last nine meetings, pushing the fed funds rate to 3.25 percent from 1 percent and helping to boost yields on shorter-dated government debt.
But long-term yields have remained low, and despite rising short-term rates -- an unusual situation -- some analysts believe it is time for yields on longer-dated debt to rise. (Confused about yields and the yield curve? Click here for help.)
This hypothesis has been lately supported by the bond market's inability to post a major rally after an attack on London's transportation system last Thursday and a soft payroll release.
Trading should remain light ahead of reports due later in the week on industrial production and retail sales that investors will watch closely for signs of economic softness, perhaps exacerbated by recent high oil prices.
In currency trading, the dollar continued to fall against the euro and yen, with the euro buying $1.2240, up from $1.2067 late Monday, and the dollar buying �110.87, down from �111.81 the previous session.
Tuesday trading was relatively thin. With no economic news to guide the market, investors held off and looked ahead to Wednesday's May trade numbers.
The trade deficit was considered a key factor that pushed the dollar into a three-year, 30 percent decline through the end of 2004. Rising interest rates have fueled a dollar rally since the beginning of this year.
China said Monday it had a fivefold surge in its trade surplus, signaling that the U.S. trade deficit could widen by a bigger margin than expected.
The trade deficit is forecast to widen in May to $57 billion, in sight of the record $60.1 billion marked in February, according to a Reuters poll.
Click here for bond charts.
-- from staff and wire reports
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