Bonds sold off on Tuesday as stocks closed lower after spending most of the session higher on a rebound in oil prices and China's decision to lower its benchmark interest rates.
Traders said the bond market was focused on how equities were trading, and the stock market wipeout in the final hour of trading pushed bond prices off their lows.
"Everyone was waiting for China to do something. To be up 300 to 400 points and now be down on the day is a little bit of a scratch your head," said Justin Lederer, rate strategist at Cantor Fitzgerald.
At their peak, benchmark 10-year Treasury note yields were up 14 basis points, eyeing their biggest one-day point gain since July 2013, at 2.14 percent, but the yields cooled after U.S. stocks turned negative, staging their biggest downside turnaround since October 2008.
Ten-year note yields recovered from four-month lows to trade around 2.091 percent, up 9 basis points on the day. In longer-dated debt, 30-year bond yields jumped to 2.819 percent, up 9 basis points and off a session high of 2.86 percent.
"I think it's a little bit of consolidation and a little bit of stability coming from China's actions today. I wouldn't get too comfortable with it if I were trading bonds today," said Bob Andres of Andres Capital Management, which oversees fixed income portfolios for institutions and private clients.
The market headwinds seen this week and last week have led investors to reassess their expectations for the timings of a U.S. Federal Reserve interest rate rise. A hike in September—the first in nine years—is now seen as less likely.
Benchmark 10-year notes briefly spiked on Tuesday after Citigroup reiterated its forecast that the Federal Reserve will raise interest rates in September, citing signs of containment.
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In a note to clients, the investment bank said "market volatility can gather enough momentum to induce global contagion and become systemic. But not yet." The call is the latest sign of the growing level disparity among Wall Street of when the Fed will lift off on rates.
"I don't think it matters if the Fed tightens. The Fed is not tightening; if they tighten it will not be for any economic reasons, but to try and normalize the spread of financial instruments," which have been out of order since the financial crisis in 2008," Andres said in an e-mailed statement.