Treasuries Extend Sharp Pullback Amid Speculation About Chinese Selling

(RTTNews) - Extending the substantial pullback seen over the two previous sessions, treasuries showed another significant move to the downside during trading on Wednesday.

Bond prices fell sharply early in the session and remained firmly negative despite regaining some ground late in the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, surged 13.8 basis points to 4.400 percent.

With the continued increase, the ten-year yield has spiked by 41.5 basis points since hitting a six-month closing low of 3.985 percent last Friday.

While typically seen as a safe haven during times of turmoil, treasuries extended their recent slump amid rising trade tensions between the U.S. and China.

After President Donald Trump imposed a 104 percent total levy on Chinese imports, China retaliated by announcing it will increase its tariffs on U.S. goods to 84 percent from 34 percent just after midnight on Thursday.

Trump later struck back, announcing in a post on Truth Social that he is raising the tariff on China to 125 percent due to the "lack of respect" they have shown to the world's markets.

The plunge by treasuries even amidst the trade concerns has led to speculation China and other parties are dumping their holdings as part of their retaliation to Trump's tariffs.

"Unusually large movements in US Treasury yields suggest someone was selling hard and fast," said Dan Coatsworth, investment analyst at AJ Bell. "One can only speculate who is behind the selling."

"It might be China reducing its US assets, hedge funds raising cash to meet margin calls, a mix of them both, or someone else entirely," he added. "It certainly called into question US Treasuries' status as a 'safe haven' asset."

In the same social media post announcing the increase in tariffs on China, Trump announced a 90-day pause on the new "reciprocal tariffs" on other countries to allow for negotiations.

White House press secretary Karoline Leavitt told reporters that tariffs would be brought down to a "universal 10 percent" level during the 90-day pause.

Treasuries regained some ground late in the day after the Treasury Department revealed this month's auction of $39 billion worth of ten-year notes attracted above average demand.

The ten-year note auction drew a high yield of 4.435 percent and a bid-to-cover ratio of 2.67, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.56.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Following several quiet days on the U.S. economic front, the Labor Department is due to release reports on consumer price inflation and weekly jobless claims on Thursday, although the data may be overshadowed by any tariff news.