2-year Treasury yield surges after poor U.S. bond auction

The 2-year Treasury yield surged more than 9 basis points on Tuesday, reaching 3.925%, following lackluster demand in a $69 billion auction.

The bid-to-cover ratio in the two-year auction, which measures the amount of investment dollars chasing each dollar of available securities, stood at 2.44, marking the narrowest bid-to-cover ratio since May 2024. Direct bidders showed their weakest performance since March 2025.

Lawrence Gillum, chief fixed income strategist at LPL Financial, commented, “Markets are currently more focused on inflation concerns than on economic growth worries. With ongoing tensions in Iran and the possibility of further increases in oil prices, yields are likely to continue their upward trend.”

The 10-year Treasury yield also rose on Tuesday, climbing over 5 basis points to 4.392% due to increased volatility in oil markets and continued military activities in the Middle East. The 30-year yield also saw an increase of more than 4 basis points, reaching 4.956%.

It’s important to note that one basis point is equivalent to 0.01%, and yields and prices move in opposite directions.

The rise in yields coincided with a rebound in oil prices on Tuesday, reversing some of the sharp declines seen in the previous session as traders reassessed the situation in the Middle East conflict.

Ian Lyngen, BMO’s head of U.S. rates strategy, highlighted the ongoing uncertainty, stating, “Headline risk remains high as the conflict continues without a clear resolution.” He added that U.S. rates are likely to be influenced by fluctuations in energy prices until there is more clarity on the situation.

Oil prices fell on Monday after President Trump mentioned positive conversations with Iran and ordered a temporary halt on planned strikes against Iran’s energy infrastructure.

However, the partial rebound on Tuesday indicated that the markets remain skeptical about a quick resolution to the tensions, especially after Iranian officials denied engaging in any talks.

Analysts pointed out that conflicting reports have increased uncertainty, making both energy and bond markets sensitive to developments. While easing tensions and lower oil prices briefly supported Treasury bonds on Monday, renewed uncertainty is once again impacting market sentiment.