Morgan Stanley analysts expect a significant steepening of the U.S. Treasury yield curve, but not due to rising long-term yields. Instead, they forecast a broad decline in yields, particularly among shorter-term maturities.

A new $58 billion auction on Tuesday of 3-year Treasury notes will be a key focus in the bond market. The 3-year segment has been an area of the Treasury yield curve that's had fairly resilient cross-

U.S. Treasury yields are set to decline further according to bond strategists who are clinging to expectations the Federal Reserve resumes cutting interest rates after pausing for more than half a year even as dealers are set to underwrite a deluge of new supply.

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Concerns over the US fiscal outlook continued to dog government bonds after they notched their first monthly decline for the year in May.

Amid a backdrop of rising Treasury yields, one strategist says the Trump administration remains "bond vigilant."

The compression in yield differential has implications for foreign investor interest in Indian debt, particularly as US yields have risen on account of persistent fiscal concerns and policy uncertainties.