The decline in U.S. Treasuries paused as investors turned their attention to bond auctions and the consumer price index (CPI) for clues on the Fed's next move. U.S. Treasuries rose, led by short-term bonds, as bets on interest rates stabilized after the market re-evaluated and scaled back rate cuts in recent days. The two-year Treasury yield fell as much as 6 basis points to 3.94%, and the 10-year Treasury yield fell 3 basis points to 3.99%.

Strong nonfarm payrolls data released last week shocked traders who bet that the Federal Reserve would cut interest rates again this year and rekindled concerns that inflation could reignite. Investors are now mainly focused on CPI data due on Thursday, which is expected to show a gradual slowdown in the pace of price increases. The market will also focus on the demand level for three-year and 10-year Treasury auctions on Tuesday and Wednesday, respectively.

“The U.S. data has not been strong enough to suggest that the Fed’s contribution to the global rate-cutting cycle appears to be coming to an end,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

Haefele said investors still need to prepare for lower interest rates, and the Federal Reserve is expected to cut interest rates by 50 basis points twice in November and December. He believes that inflation data will not pose any obstacles to further easing policies.

Traders are currently betting the Fed will cut rates by about 50 basis points by the end of this year, with less than 150 basis points of cuts expected by October 2025. That's down from expectations of about 200 basis points of cuts in late September.

U.S. Treasuries tumbled on Monday, with key yields rising above 4%, the highest since August last year, as paring back expectations for a rate cut by the Federal Reserve poured cold water on a bond-buying frenzy that had previously rallied for five straight months.

“The market is really a little bit ahead of itself in pricing in a rate cut from the Fed,” Patrick Armstrong, chief investment officer at Plurimi Wealth, said on Bloomberg TV. “I do think that by 2025, inflation could become a problem again.”

Attention has returned to inflation trends, with Fed official Adriana Kugler saying the central bank should focus on bringing inflation back to its 2% target and that she "strongly supports" last month's 50 basis point rate cut. Meanwhile, St. Louis Fed President Alberto Musalem warned that further rate cuts should be gradual.