Long-maturity Treasury yields tumbled Wednesday as part of a broader rally in dollar-denominated risk assets, after US President Donald Trump said he wasn't inclined to fire the head of the Federal Reserve and suggested tariffs on Chinese imports could drop.
Yields on 30-year bonds — the longest-maturity Treasury security — fell 13 basis points to just under 4.75%, among their biggest declines this year, while 10-year yields fell 10 basis points. Shorter-maturity yields, more closely tied to the interest rate set by the Fed, rose from little-changed levels after March new home sales data were stronger than economists estimated despite
"It's a clear tone shift, short-term, both around Powell and China," said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. "It still remains to be seen how long a broad relief-rally plays out," with markets reversing their recent trades of higher long-end rates, a steeper Treasury yield curve and lower stock prices.
Yields — which had already fallen at least 10 basis points on the day in the 10- to 30-year tenors based on
While Treasury debt historically has been a haven asset that benefits when investors flee the stock market, steep declines for US equities in recent weeks were accompanied by rising long-term yields. Concern that Trump's trade policies and threats to the Fed's independence would erode foreign demand for US assets hurt bonds as well as stocks, particularly long-dated bonds, which carry the most risk of price declines. Stock benchmarks also rebounded sharply Wednesday, with the S&P 500 Index rising more than 3%.
Widely-watched yield-curve segments such as the gaps between two- and 10-year and between five- and 30-year yields reached historically wide levels this week as investors dumped long-maturity Treasuries. In particular, the five- to 30-year spread topped 96 basis points for the first time since 2021. On Wednesday it contracted back to around 80 basis points.
A dearth of top-tier US economic data this week has created a near-vacuum into which White House pronouncements on trade negotiations and Fed policy have become the principal driver of daily swings, said Jack McIntyre, portfolio manager at Brandywine Global Investment Management.
"The market's kind of taking a collective side of relief, and that's why the curve is flattening, but that's today's story," McIntyre said. "The bond market always looks at economic data, but you can't really draw a significant conclusion from the economic data right now."
The rally lowered the expected yield for the second of this week's three Treasury note auctions — $70 billion of new five-year notes — at 1 p.m. New York time. The yield was about 3.96% in pre-auction trading, about four basis points lower on the day. It peaked at about 4.01% on Tuesday.
Wednesday's auction is a particularly strong indicator of non-US demand for Treasuries because more than 60% of foreign holdings mature in five years or less, according to the latest data from the Treasury and Federal Reserve. A sale of seven-year notes follows on Thursday; two-year notes were sold Tuesday.
"If you're a non-US investor, and you take Trump's last comments as his word, then you're probably supposed to buy some five-year Treasuries," McIntyre said.
Indirect bidders — the category that includes foreign central banks bidding through the Fed — were awarded 75.8% of last month's five-year auction, close to a record high in data going back to 2004.
