Treasurys extended losses on Wednesday, pushing yields to session highs, as investors sold "safe-havens" and piled into riskier assets.
U.S. stocks rose sharply in late-afternoon trading, with the Dow and S&P 500 logging their biggest gains since November 2011 and the Nasdaq ending up 4 percent.
Bonds, which move in the opposite direction of yields, sold off after a five-year note auction received a lukewarm response and a key Federal Reserve official signaled lower odds of a rate hike in September.
Strategists said the market continued to trade on concerns about China, but bonds sold off on the comments from New York Fed President William Dudley who said there is a "less compelling" case for a September rate hike.
Dudley, a know dove and a close ally of Fed Chair Janet Yellen, spoke ahead of the Jackson Hole Fed symposium at the end of the week, where Fed Vice Chair Stanley Fischer will give an address on Saturday.
CRT Capital's David Ader said Dudley's comments "were the icing on the cake" and confirmed the view of the now majority of investors who see less chance of a rate hike in September.
"We've seen a lot of price movement and, I think, on a lot less lot of less market-determining information—whether it's fundamental data or these comments by Dudley—I don't think the market necessarily needed to hear that the case for a September rate hike is less compelling given the recent events," said Ader, chief Treasury strategist.