(Bloomberg) — Treasury yields have dropped to a four-month low as a gauge of U.S. service-sector activity faltered, with short covering exacerbating the move.

The benchmark 10-year yield fell as much as eight basis points on Tuesday to print under 1.35%, the lowest level since Feb. 24. The 30-year yield dropped to 1.971%, testing its 200-day moving average. Session lows were seen after the ISM Services Index for June fell more than expected from May’s record high.

“The large reaction of the Treasury market to data over the last week and the lack of reaction in the TIPS market indicates this move has been exaggerated by short covering,” JPMorgan Chase & Co. strategists led by Jay Barry wrote in a client note. The bank’s latest Treasury client survey show short positions elevated near yearly highs.

Some Wall Street analysts were caught out by the rally. TD Securities strategists bailed on their recommendation to be short on the 10-year bond, suggesting that “short covering and thin summer markets likely exacerbated” the rally.

There are bullish supply-and-demand factors also in play. Again, the only securities on the Treasury department’s auction schedule this week are bills. Investors are also waiting on Wednesday’s release of Federal Reserve minutes for more details about the monetary policy outlook.

The slowdown seen in ISM survey shows there is some economic underpinning to the bond rally. The decline in Treasury yields also reflects the view that “the upside currently underway in the U.S. economy is only temporary,” BMO Capital Markets strategists Ian Lyngen and Benjamin Jeffery wrote in a note.

Bulls in the $21.4 trillion Treasury market also snapped up bonds as the U.S. holiday-shortened week began with several Wall Street strategists making the case for even lower yields. Analysts foresee an array of forces, including the Federal Reserve’s long track record on keeping inflation in check, that bode well for more price gains for long-term Treasury debt holders.

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The 10-year yield is down about 42 basis points from a 14-month peak of 1.77% reached on March 30. A string of block trades in 5-year futures helped drive rates across the curve downward with the equivalent of around $2 billion in cash bonds bought.

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