Treasuries-US bonds dip as inflation data looms; Mideast tension still a factor

"We were a little surprised to see yields back up so much... which could be related to what is a pretty busy week," Jason Williams, U.S. rates strategist at Citi, said on a global call on Monday, citing the release of the consumer price index data on Wednesday.

Citi economists, he noted, expect another weak CPI report. In its latest report, Citi wrote that the narrative over labor market data is finally starting to change, noting that another weaker-than-expected core inflation data print should lead to lower inflation expectations.

"Still, as we've been saying ... reinforced by most of our recent client discussions that (the) downside asymmetry in Treasuries ... is keeping real money accounts sidelined right now. One strong CPI print quickly can change a narrative, and Treasuries can be under significant pressure."

CPI is forecast to rise 0.1% in July from a 0.4% fall in June, while the year-over-year figure is expected at 3.4% from 3.5% the previous month, according to a Reuters poll. The core CPI forecast was for a 0.1% rise while the year-on-year number was seen rising by 2.5%.