TREASURIES-US yields extend rise on tariff optimism

By Karen Brettell

April 8 (Reuters) - U.S. Treasury yields jumped on Tuesday for the second day on greater optimism that U.S. President Donald Trump will strike deals with trading partners that limit the expected economic fallout from tariffs.

Some investors including hedge funds are also thought to be selling bonds to meet margin calls and deleverage their portfolios following a sharp selloff in stock markets, adding to the move higher in yields.

The Trump administration is negotiating trade agreements with countries including Japan and Treasury Secretary Scott Bessent said the discussions are the result of multiple calls from other countries and not sliding financial markets.

“Markets seem to be a lot more optimistic. Maybe the deal-making will actually start in terms of trade negotiations,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.

However, “conviction levels are still very, very low. Investors aren't quite sure what to do next, especially if we don't see quite the worst-case scenario on trade that folks were expecting,” Goldberg said.

Meanwhile the United States called China's retaliation against its tariffs a "big mistake" on Tuesday. China refused to bow to what it called "blackmail" after Trump threatened to ratchet up tariffs on U.S. imports from China to more than 100% in response to China's decision to match "reciprocal" duties Trump announced last week.

A sharp move higher in Treasury yields on Monday raised speculation that leveraged investors are selling U.S. Treasuries as they deleverage their portfolios due to stock market volatility.

“A lot of times that's a sell what you can, not what you want, type of trade. And a lot of these deleveraging trades tend to hit in almost unclear ways,” Goldberg said. “It makes it very difficult to predict what markets do next.”

There is some market concern that large foreign holders of Treasuries including China could offload their debt or abstain from new purchases, which could also weigh on the market.

Demand for U.S. government debt will also be tested this week as the Treasury sells $119 billion in coupon-bearing securities. This will include $58 billion in three-year notes on Tuesday, $39 billion in 10-year notes on Wednesday and $22 billion in 30-year bonds on Thursday.

Benchmark 10-year note yields US10YT=RR were last up 8.6 basis points on the day at 4.243%. They fell to 3.86% on Friday, the lowest since October 4.

Interest-rate sensitive two-year yields US2YT=RR rose 10.5 basis points to 3.844%. They had reached 3.435% on Monday, the lowest since September 2022.

The yield curve between two- and 10-year notes US2US10=TWEB flattened by around a basis point to 40 basis points, after reaching 45 basis points on Monday, the steepest since January 13.

Safe-haven demand for bonds also ebbed on Tuesday as stock markets bounced back from a heavy selloff.