Treasury yields fell to a four-month low due to a poor measure of US service sector activity, a trend exacerbated by short covering.

The yield on the benchmark 10-year u.s. bond fell as much as 8 basis points on Tuesday to below 1.35%, its lowest level since Feb. 24. The yield on 30-year Treasuries fell to 1.971%, testing the 200-day moving average. The previously released ISM services index fell more than expected in June from a record high in May.

"the strong reaction of the US bond market to the data over the past week and the lacklustre reaction of the inflation protected bond (TIPS) market suggest that short covering has magnified the trend," said JPMorgan Chase, such as Jay Barry.The strategist wrote in a report to clients. The bank's recent survey of US debt customers shows that short positions are nearing their highest levels of the year.

Some Wall Street analysts changed their minds because of the rally. Dow Securities strategists abandoned advice on shorting 10-year Treasuries, saying "short covering and light summer trading could exacerbate" the rally.

Supply and demand factors are also good for the bond market. The only item on the Treasury auction table this week is short-term Treasuries. Investors are also waiting for the minutes of Wednesday's Fed meeting to be released for more details about the outlook for monetary policy.

The slowdown in service sector expansion reflected in the ISM survey suggests that there is some economic basis for the rise in US debt. The decline in U.S. bond yields also reflects the view that "the current growth momentum in the U.S. economy is only temporary," BMO Capital Markets strategists Ian Lyngen and Benjamin Jeffery wrote in the report.