TREASURIES-Benchmark yield slips as monumental Treasury shakeout pauses

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10-year Treasury yield falls after last week's surge

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Trump's tariff exemptions calm markets, but new tariffs loom

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Hedge funds offloaded bonds amid market volatility, margin calls

By Alden Bentley

NEW YORK, April 14 (Reuters) - Fear the U.S. Treasury market would lose its global preeminence abated slightly on Monday, with the 10-year yield falling back after last week's epic surge, even as more tariff headlines from the White House kept the confusion over trade policy alive.

Wall Street looked calmer across assets after U.S. President Donald Trump unveiled exemptions late on Friday for smartphones and computers from new tariffs on China, although he also said on Sunday that new tariffs on imported semiconductors would be announced this week, keeping rattled markets on edge.

The yield on the benchmark U.S. 10-year Treasury note was down 9 basis points at 4.403% after surging to a two-month high at 4.592% on Friday and ending with the biggest weekly gain since late 2001 - up about 50 basis points.

"The panic, like the tariffs, is paused and I think that the dollar is not so glaringly weak this morning," said Lou Brien, market strategist at DRW Trading in Chicago. "The Trump administration has suggested at least some flexibility on these things so that maybe there could be a negotiated resolution rather than the worst-case scenario."

With markets closed this Friday, investors and traders were ready for a breather from last week's chaos. Retail sales data and a presentation by Federal Reserve chair Jerome Powell on Wednesday keep the door open for volatility to continue, even if news from the administration is limited.

Hedge funds and other asset managers offloaded bonds last week, sending their yields sharply higher, after receiving margin calls and posting sharp losses from market volatility, analysts said.

"Although the dollar is a long way off from losing its de facto role as the global currency, elevated policy uncertainty makes the USD and Treasuries marginally less attractive as a haven," Will Compernolle, macro strategist at FHN Financial, wrote in a client note published on Monday.

Leveraged investors in particular have been hurt by market whipsaws after Trump on April 2 announced bigger-than-expected tariffs on trading partners, but then offered a 90-day pause for most countries on Wednesday.

The unwinding of basis trades, a popular strategy in which investors seek to profit from the difference between cash Treasuries and futures prices, was cited as a large factor behind last week's volatility. But data released late on Friday by the Commodity Futures Trading Commission on positions held by large traders and speculators such as hedge funds did not confirm the suspected unwinding, indicating instead that basis trades in the bond market are alive and well.

Brien said given the bond market liquidation last week, some probably saw opportunities to get back into positions. The worry about foreign investors shunning dollar-based investments, even the super-deep and safe Treasury market, was mitigated somewhat by strong auctions of 10-year and 30-year Treasuries last week, although a weak three-year sale did not help the picture.

"Some of it may be flows as well, obviously, we went a long way and unless you're committed to it, if you're more of a trader then it's not a bad spot to cash in," Brien said.

The two-year U.S. Treasury yield, which typically moves in step with interest-rate expectations, fell 5.5 basis points to 3.899%.

The yield on the 30-year bond was down 6.9 basis points from late Friday at 4.806%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, which is seen as a gauge for economic growth expectations, was at a positive 50.0 bps, slightly flattened from 52.4 bps late on Friday. Last week the two-year/10-year curve reached 74 bps, its steepest since January 2022. (Editing by Rod Nickel)