Bonds slip as stocks pop

NEW YORK (CNNMoney) -- Treasury prices eased Monday as stocks rallied and fear of a Japanese nuclear disaster dissipated.

"We seem to have skirted a nuclear meltdown and that is really what the bond market was looking at last week," said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson.

A massive earthquake and devastating tsunami struck Japan on March 11, damaging the Fukushima Daiichi nuclear power plant. Japanese engineers made progress over the weekend to cool the nuclear reactors.

Wall Street breathed a sigh of relief, with the Dow Jones industrial average jumping almost 200 points and marking its third consecutive day of gains. When stocks rally, investors tend to move out of the safe-haven of bonds.

Also fueling the stock rally on Monday, AT&T (T, Fortune 500) announced an offer to purchase T-Mobile USA. "After a dearth of activity, we are starting to see mergers again, which is a pro for stocks, negative for bonds," said Hurley.

Bond prices and yields move in opposite directions. As prices fall, yields rise. Yields were up across the board Monday. The yield on the benchmark 10-year note edged up to 3.33%, the 30-year bond yield rose to 4.45%, the 5-year note was 2.03% and the 2-year note was 0.64%.

Also shaving away at bond prices Monday, Treasury announced that it would be liquidating some mortgage-backed securities holdings.

"It is certainly not going to be anything that is going to overwhelm the market in force, but nonetheless, it is supply coming into the market, so that is helping prices as well," said Hurley.

Stuck in a rut: Even as yields rally Monday, the 10-year yield has been bouncing around in the mid-3% range for a few months.

"If we are going to break through the low end of prices, high end of yields, you are definitely going to need to see the situation in the Middle East, Northern Africa stabilize and consistently stronger economic growth," said Hurley.

Just Monday, a Realtor's Group announced that homes sold at an annual rate of 4.88 million in February, down 9.6% from January and 2.8% lower than February 2010 sales.

Also, oil prices surged more than $2 a barrel after coalition forces launched an attack on Libyan military targets over the weekend. And economists are concerned about rising oil prices.

For prices to rise and yields to fall much, there would have to be continued international turmoil and more weak economic data, including the manufacturing sector, said Hurley.

"I think we are in a range," said Hurley, between 3.25% and 4% for the benchmark note. "I don't see anything that is going to cause us to break out of it at least in the near term."