TREASURIES-Long bonds bask in the glow of hefty Japan rally

By Amanda Cooper

LONDON, May 27 (Reuters) - Long-dated Treasury yields were set for their biggest one-day fall since mid-April on Tuesday, as 30-year bonds mimicked a steep price rally in longer-term Japanese debt and as investors mulled the latest about-face in U.S. tariff policy.

After threatening the European Union on Friday with a 50% tariff on all goods entering the U.S. from June 1, President Donald Trump back-pedalled following a weekend call with European Commission President Ursula von der Leyen, pausing the hike until July 9.

The yield on 30-year bonds US30YT=RR, which were at the epicentre of the market sell-off in April following Trump's initial raft of tariffs, were down 8.4 basis points in early London trading at 4.953%.

They last fell that much in a day on April 2, Trump's original "Liberation Day", when he unveiled his tariffs.

Thirty-year yields, which affect anything from U.S. government borrowing costs to home mortgage rates, are still just below 5%, near their highest since October 2023.

Japanese 30-year debt, which was punished last week after a weak auction reflected investor concern about the country's creaking finances, got a reprieve on Tuesday that pushed yields down by nearly 20 basis points JP30YTN=JBTC.

Japan will consider trimming issuance of super-long bonds in the wake of recent sharp rises in yields for the notes, two sources told Reuters on Tuesday, as policymakers seek to soothe market concerns over worsening government finances.

The Ministry of Finance (MOF) will consider tweaking the composition of its bond programme for the current fiscal year and will make a decision following discussions with market participants around mid- to late-June, sources said.

"These questions (from the MOF) were widely interpreted as an attempt to regain control over the long end after the heavy bear steepening and come amidst markets pondering whether government issuance will be skewed much (shorter) to balance the steepening of the yield curves," RBC strategists said in a note.

"Thirty-year Treasury yields are also down around 7 bps amidst a bull flattening," they said.

Meanwhile, the yield on the benchmark 10-year note US10YT=RR was down 4.2 bps at 4.469%. U.S. bond markets were closed for Memorial Day on Monday.

Adding to the vulnerability of the longer-end of the curve is Trump's sweeping tax and spending bill, which is making its way to the Senate. The bill will add trillions to the U.S. deficit, and investors are demanding much higher compensation to own long Treasuries than they did six months ago.

Separately, the U.S. government will auction $69 billion in new two-year Treasuries on Tuesday. Last week's 20-year auction drew weak demand, which may set the scene for volatile trading later.