Treasury sell-off stalls

NEW YORK (CNNMoney.com) -- Treasury prices took a post-holiday respite from their month-long sell-off on Monday.

Investors sent bond prices higher, following a surprise interest rate hike in China and ahead of a $99 billion auction of long-term government notes scheduled for this week.

The yield on the benchmark 10-year note fell to 3.35%. The 30-year bond yield sank to 4.42%.

Meanwhile, the yield on the 2-year note was even at 0.61%, and the 5-year note also held steady at to 2.05%. Treasury prices and yields move in opposite directions.

The Treasury Department issued a new slate of two-year notes Monday, worth a total of $35 billion. It was surprisingly successful, with about three-times as much investment interest as there were bonds to sell. That could bode well for bonds this week, analysts say.

"Today's two-year auction will set the tone for the first two days this week, depending on the size of the tail," said Jim Vogel of FTN Financial, in an analyst note. "End-of-December Treasury sales are dicey to begin with and each bidder will be watching over their shoulder for bids wanted on any price strength."

Vogel said participation in end-of-year bond auctions typically falls about seven or eight percentage points, but the wintry conditions in New York had been expected to keep even more traders at bay.

Also lifting bonds Monday was yesterday's news that the People's Bank of China raised its benchmark interest rates by a quarter of a percentage point, increasing its one-year lending rate to 5.81% and the one-year deposit rate to 2.75%.

That marked the second hike in just over two months. China raised rates in October for the first time in three years. That move also send stocks lower.

Trading desks continued to be lightly staffed during the holiday season. Both stock and bond trading has been relatively muted recently. Treasuries have essentially been in a downward trend all December.