By Min Zeng

The roaring U.S. government bond market is suffering a mild setback.

Bond prices dropped Wednesday, following the biggest one-day selloff since November 2013 in the prior session. Investors took chips off the table after a steep rally over the past month.

Traders said the recent decline in bond yields has priced in lots of downbeat news on global growth and that fresh monetary stimulus from a number of global central banks so far this year may provide a boost to the economy in the coming months.

In addition, a flurry of new corporate bond sales from companies, including Apple Inc. attracted money out of Treasury bonds because of their more-attractive yields. The Treasury debt market also faces $64 billion of new supply next week, which also weighed down bond prices.

In late-afternoon trading, the yield on the benchmark 10-year Treasury note was 1.794%, compared with 1.781% Tuesday and a 21-month low of 1.669% on Monday.

Bond prices fall as their yields rise.

Demand for haven Treasury bonds had soared in the past few weeks, extending the market’s rally since the start of 2014, as worries grew over the global economic outlook and a deflation scare in Europe following a more-than-50% decline in crude-oil prices since June.

The 10-year yield has tumbled from 2.173% traded at the end of 2014 and 3.03% at the end of 2013.

We are at [yield] levels that are pricing in a lot of bad outcomes, said Thomas Roth, executive director in the U.S. government bond trading group at Mitsubishi UFJ Securities (USA) Inc. in New York. If the outcomes especially in Europe turn out to be better than expected, then we are seriously mispriced and people are going to scramble out of the door.

On Wednesday, China’s central bank cut by half a percentage point the amount of deposits set aside by commercial banks in case of financial trouble. The step effectively frees up about 500 billion yuan, or about $81 billion, in additional funds that banks can now lend out.

Central banks in Australia, Canada, Denmark and Switzerland have cut interest rates so far this year. The European Central Bank announced last month it will start buying bonds—including government bonds in the eurozone—in March to curb deflation, a toxic economic cycle of falling consumer prices and reduced spending.

At the height of the selling earlier Wednesday, the 10-year Treasury yield jumped to 1.846%, the highest intraday level in two weeks.

The bond market’s price loss was narrowed in the afternoon session as U.S. crude-oil prices tumbled by 8.7%, erasing a 7% rally on Tuesday.

Some investors and traders expect the selloff in Treasury bonds won’t last long.

The global growth outlook remains worrisome and oil has not bottomed, said Tom di Galoma, head of rates and credit trading in New York at ED & F Man Capital Markets. The longer-term trend is still in place for bond yields to make new lows in the coming months.

Another support for Treasurys comes from their more-attractive yields compared with government bonds in Europe and Japan. Analysts said money managers in Europe and Asia will be drawn to U.S. bonds. A stronger dollar—which has rallied against the euro over the past year—has enabled foreign buyers to pick up extra returns on their investments in U.S. financial assets.

Wednesday, the yield on the 10-year German government bond was 0.363%, and the yield on the 10-year Japanese government bond was 0.385%. The 10-year U.K. government bond yielded 1.525%.

U.S. Treasury bonds are still the best value when compared to other sovereigns, said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York. I think we will see dip buyers.

Write to Min Zeng at min.zeng@wsj.com -0-