10-year yields pare gains after strong auction, tariff delay

NEW YORK – Benchmark 10-year Treasury yields pared an earlier rise on Wednesday after the US Treasury Department saw strong demand in an auction of the notes and after President Donald Trump announced a pause on some tariffs placed on US trading partners.

Together, the events are likely to bring more stability to the market, at least short term, analysts said. A sharp surge in yields this week and reports of large liquidations of bonds had raised concerns about deteriorating market liquidity.

“The liquidity in the Treasury market was the big elephant in the room from a risk perspective,” said Matt Eagan, portfolio manager and head of the full discretion team at Loomis, Sayles & Co. “It’s helped stabilize things because… we were getting very close to a period where the market became dysfunctional.”

The Treasury sold the 10-year notes at a high yield of 4.435%, around three basis points below where they had traded before the sale. Demand was 2.67 times the amount of debt on offer, the highest ratio since December.

Indirect bidders, which include foreign central banks, took a much larger share of the auction than usual at 87.9%, potentially allaying some concerns about foreign demand for the debt.

The two largest foreign holders of Treasuries, however, Japan and China, both have direct access to the auctions, and direct bidders took just 1.4% of the sale, the lowest portion in about 15 years, according to Lou Brien, strategist at DRW Trading.

The Treasury will also auction USD 22 billion in 30-year bonds on Thursday.

The 10-year note yield was last up 12.6 basis points on the day at 4.386%. It earlier reached 4.515%, the highest since February 20.

Thirty-year bond yields gained 6.1 basis points to 4.776% and got as high as 5.023%, the highest since November 2023.

Longer-dated yields have surged this week as traders exit the market due to forced selling to meet margin requirements, reaching stop-loss levels or taking profits from a sharp rally late last week.

Speculation has also increased that large foreign holders of Treasuries, including China may be offloading some of their portfolio as they face off against the United States in a rapidly escalating trade war.

Trump raised tariffs on China on Wednesday, even as he said he would temporarily lower new tariffs on many countries.

The interest-rate sensitive two-year yield has been more stable, but jumped on Wednesday on expectations the Federal Reserve will not cut rates as soon and as aggressively following Trump’s tariff pause. It was last up 20 basis points at 3.94% and reached 4.039%, the highest since March 27.

Fed funds futures traders are now pricing in three 25 basis point cuts by year-end, with the first most likely in June. Those expectations had gotten as high as five cuts this year, with a May start.

The yield curve between two- and 10-year note yields flattened to 44 basis points, after earlier reaching 74 basis points, the steepest since January 2022.

Some of the steepening had been due to inflation concerns, with those fears now easing somewhat due to the tariff pause.

Fed policymakers were nearly unanimous at their meeting last month that the US economy faced risks of simultaneously higher inflation and slower growth, according to the minutes of the meeting on Wednesday.

Market volatility, meanwhile, is likely to remain elevated as traders continue to gauge how tariffs will play out on the US and global economy.

“One thing that it (the pause) doesn’t do is eliminate uncertainty. The uncertainty is because the level of tariffs just seems to change from day-to-day,” said John Canavan, head analyst at Oxford Economics in New York.

(Reporting By Karen Brettell; Additional reporting by Lewis Krauskopf; Editing by Chizu Nomiyama, Nick Zieminski, and Nia Williams)