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With a light calendar of releases, the U.S. Treasury market is expected to remain flat ahead of two key measures on the economy coming out later in the week.

A report due Thursday is expected to show retail sales in the U.S. climbed 0.6 percent in May, up from the 0.1 percent gain in April. This will be followed on Friday by the release of the Producer Price Index (PPI) data, which is expected to show that inflation remains subdued. In May, PPI (ex food and energy) is expected to rise just 0.1 percent, down from the 0.5 percent increase in April.

This data is on the heels of the jobs data released Friday that showed that employers added a net 217,00 jobs in May, following a revised 282,00 jobs in April. The data indicates that the U.S. economy is performing better than many economists had expected and continues to gather momentum in its recovery.

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This week, the Treasury will also auction three-year and 10-year notes, as well as 30-year bonds. The recent strong economic releases coupled with the dealer underwriting of new debt brought about the first sell-off in the bond market in three weeks.

Yields on Friday in the 10-year note closed at 2.57 percent, up 10 basis points from the previous week's close. Yields move inversely to prices, so when yields rise, prices fall in the fixed income market. Resistance for the 10 year note yields remains at 2.6 percent and expect rates to test that level next week.

Rates are not expected to significantly breach the 2.6 percent level and may soon resume a downward path. The European Central Bank's (ECB's) decision on Thursday to cut its overnight rate to 0.15 percent and its bank deposit rate to -0.10 percent will continue to put downward pressure on eurozone sovereign debt rates.

The ECB also strongly hinted at further accommodative policies in the months ahead, including its own form of QE if necessary.

The yield on the 10-year German bund closed at 1.35 percent. The spread between U.S. Treasury 10-year notes and the 10-year German bund is near an all time wide. There will not be a substantial rise in long-term U.S. rates without a pick up in German yields. Furthermore, yields in both Spain and Italy are only slightly higher than their U.S. equivalent. Spain's 10-year note closed at 2.63 percent while Italy's closed at 2.75 percent.

It is going to be very difficult to get the U.S. Treasury note yield above the yield of Italy and Spain. The US. has much stronger credit and economic conditions as well as a far more liquid capital markets than either of those two countries. As eurozone rates fall, expect U.S. Treasury rates decline after the auctions are completed on Thursday.