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.
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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.
The yield on the benchmark 10-year Treasury note was at 2.19 percent, a fresh session high, while five-year notes were yielding 1.47 percent, off the session's peak of 1.50 percent.
In longer-dated debt, 30-year yields were up 15 basis points at 2.96 percent, also a session high, and breaking above their 100-day moving average of 2.929 percent, according to Reuters.
Justin Lederer, rate strategist at Cantor Fitzgerald, points out that trading in Treasurys has been extremely choppy and buyers are coming in at the lows, especially after the remarks by Dudley.
The Treasury's $35 billion auction of five-year notes met tepid demand and the high yield came in at 1.463 percent, the lowest since April. The bid-to-cover ratio—an indicator of demand—was the weakest since July 2009, at 2.34 and below the recent average of 2.50.
Indirect bidders, which include major central banks, were awarded 50.1 percent, well below the 59 percent average. Direct bidders, which includes domestic money managers, bought 7.5 percent, which was nearly on par with the recent average of 8 percent.
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Ader said the market is responding more to technicals than to Dudley. "You would think that if this was a Fed event, and the market was gaining more confidence that the Fed was not going to hike in September, that that would have been a little more assist to the steeping but it really hasn't."
He's watching the data closely, especially GDP, which is expected to be revised upward on Thursday.
Earlier, a report showed U.S. durable goods orders gained a greater than expected 2 percent during the month of July following a 4.1 percent increase in the previous month.
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China's benchmark Shanghai Composite finished down 1.3 percent on Wednesday after fluctuating throughout the day.
