U.S. Treasuries fell on Thursday after three consecutive poor U.S. Treasury auctions, with weak demand highlighting investor fatigue with market volatility stemming from failed diplomatic efforts aimed at ending U.S. military operations in Iran.
The rout in the $31 trillion U.S. debt market deepened further on Thursday after a sale of 7-year U.S. Treasury notes. By late trading in New York, the benchmark 10-year U.S. Treasury yield rose 7.95 basis points to 4.4117%, trading in a range of 4.3361% to 4.4256%. The 2-year note’s yield rose 10.05 basis points to 3.9858%, trading between 3.8914% and 3.9981%.
The winning yields for the 2-year, 5-year and 7-year U.S. Treasury notes auctioned this week were all higher than market levels at the auction close, the first time this has happened since May 2024 and the worst auction performance in a month. In May 2024, traders were also reducing bets on Federal Reserve rate cuts.
“We’ve seen wild intraday swings on various headlines at unexpected times. That makes people reluctant to add additional risk. In an environment like this, it’s harder to digest large liquidity events like auctions smoothly,” said industry insiders.
This week, the U.S. government sold $183 billion of fixed-rate debt, completing its issuance for the month. The 7-year notes were awarded at a yield of 4.255%, higher than the 4.247% for similar notes at the auction close. Demand for the 2-year and 5-year notes sold earlier this week was even weaker.
The weak demand comes amid uncertainty about the duration of Middle East conflicts and their economic impact, which has driven up energy prices and forced traders to re-evaluate the Federal Reserve’s policy path.
Since U.S. military actions disrupted Middle East supply on February 28, U.S. Treasury yields have generally moved in lockstep with oil prices. Traders have abandoned bets on Fed rate cuts this year on prospects of rising inflation, and are even pricing in rate hikes, adding to pressure on Treasuries.
U.S. benchmark crude closed near $100 a barrel last week and fell on Monday after Trump declared progress in ending the war; but prices rose as much as 5.5% to about $95 on Thursday after Trump threatened to increase attacks. Trump later extended the deadline for Iran to reopen the Strait of Hormuz to April 6, saying talks were “going very well.”
The global bond market had rallied earlier this week on possibilities of de-escalation between the U.S. and Iran, but markets turned lower again as a deal was rejected and threats escalated.
Rate strategists at Morgan Stanley said this week that market volatility has also increased trading costs, especially for short-term bonds. This may also be part of the reason for the weak auction performance this week.

The winning yields for the 2-year, 5-year, and 7-year U.S. Treasury notes auctioned this week were all higher than market levels at the auction close, the first time this has happened since May 2024, marking three consecutive poor auctions within a month. In addition to the conflict in Iran dampening expectations of interest rate cuts, and even raising expectations of a rate hike, market volatility has also increased trading costs, especially for short-term bonds, which may also be part of the reason for the weak auction performance this week

- U.S. Treasury yields fell on Thursday, following three poorly received bond auctions, indicating investor fatigue as diplomatic efforts to end military actions in Iran faltered.  
- The 10-year Treasury yield rose by 7.95 basis points to 4.4117%, while weak demand was observed across 2-year, 5-year, and 7-year bonds, marking the worst auction performance since May 2024.  
- Market volatility, influenced by ongoing Middle East conflicts and rising energy prices, has led traders to reconsider Federal Reserve policy expectations, further pressuring Treasury yields.

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Iranian Situation Impacts U.S. Treasuries! Third Auction This Week Weak, U.S. Treasury Sell-off Intensifies