(Bloomberg) -- Long-maturity Treasury yields declined 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 as much as 17 basis points to just under 4.71%, 10-year yields as much as 15 basis points, before paring their declines. Shorter-maturity yields, more closely tied to the interest rate set by the Fed, rose after March new home sales data were stronger than economists estimated despite higher US mortgage rates. Good demand for the monthly auction of five-year notes helped allay concerns about waning foreign interest in owning US assets.
“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 Trump’s comments late Tuesday — reached new lows after the Wall Street Journal reported that the White House was considering cutting tariffs on Chinese imports to de-escalate the trade war it launched April 2.
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%.
Auction Demand
The second of this week’s three Treasury note auctions — $70 billion of new five-year notes — was well received. Its yield, 3.995%, was a basis point lower than where the notes were trading at the bidding deadline, a sign that investors were willing to settle for a lower return than dealers anticipated.
Wednesday’s auction was seen as 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 Fed. 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 64% of the sale, near the average for five-year note auctions since 2020.
Earlier this week, 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 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 82 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.”
(Adds five-year note auction result, updates market levels.)
