TREASURIES-US yields hit multi-week highs on global trade hopes

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US-UK trade deal spurs Treasuries selling in risk-off market

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UK trade deal not a game changer, but a good start, analyst says

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US 10-year yield hits two-week peak

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US 30-year bond auction shows lackluster results

By Gertrude Chavez-Dreyfuss

NEW YORK, May 8 (Reuters) - U.S. Treasuries yields on Thursday touched multi-week highs, as a trade deal between the United States and Britain spurred optimism that similar agreements will be struck with other countries in the coming weeks and months.

Investors saw this as a sign that the Trump administration's self-induced global trade tension could be easing, sparking a flight out of Treasuries into risk-friendly assets such as stocks.

U.S. two-year yields hit three-week peaks in the aftermath of the trade deal, while those on the 10-year rose to their highest in two weeks. The U.S. and UK simultaneously announced on Thursday a deal to lower tariffs on some goods, the first such agreement since President Donald Trump sparked a global trade war with the imposition of import duties around the world. The wide-ranging agreement includes concessions on cars, steel, beef and ethanol, among others, that would generate $6 billion for the United States in tariff revenue and $5 billion in new export opportunities. At the same time, Britain gave the U.S. access to agricultural markets, with the deal creating an aluminum and steel trading zone and securing the pharmaceutical supply chain.

"Today is all about optimism that we got a trade deal done...and maybe this is not as bad as we thought. If we have one deal crossing the line, maybe there will be more to come," said John Velis, macro strategist for the Americas, at BNY in New York.

"If tariff threats start to recede and if this UK deal is the beginning of a range of deals coming up, then you would think (Federal Reserve Chair Jerome) Powell wouldn't have to cut rates very much at all."

U.S. Commerce Secretary Howard Lutnick also said the UK will buy $10 billion of Boeing planes. Boeing shares on Thursday hit their highest level since July 31, and were last up 3.8% at $192.64.

In afternoon trading, the benchmark 10-year yield rose 9.9 basis points (bps) to 4.375%. It earlier hit a high of 4.384%, its strongest level since April 23.

On the front end of the curve, the two-year yield , which reflects interest rate expectations, advanced 9.5 bps to 3.888%. Earlier in the session, it touched 3.907%, the highest since April 14.

Will Compernolle, macro strategist at FHN Financial in Chicago said that while this was a good first step for the Trump administration, it's "not the trade deal that is going to dramatically change how the U.S. economy responds."

"It's also one of the easier deals to make," he added. The trade announcement comes a day after the Fed held interest rates steady, as expected, but noted that the risk of higher inflation and unemployment had increased.

Fed Chair Jerome Powell, in a press conference after the Fed's policy meeting, emphasized the high degree of uncertainty arising from the Trump administration's tariffs and noted that the Fed cannot be pre-emptive when it comes to monetary policy.

Treasuries rallied after the Fed statement on Wednesday and during Powell's press conference, as the market took the statement as flagging stagflation, a low growth, high inflation scenario. On Thursday, that rally has been unwound.

WEAK AUCTION

Also on Thursday, the U.S. Treasury sold $25 billion in 30-year bonds and showed mixed results, following successful auctions of three-year and 10-year notes earlier in the week. The auction priced poorly, fetching a yield of 4.812%, higher than the expected rate at the bid deadline, suggesting that investors demanded a premium to purchase the bond. The 30-year also did not fare well at last month's auction, picking up a yield that was higher than expected as well.

The bid-to-cover ratio, a gauge of demand, was 2.31, below last month's 2.43, and was the lowest since July 2024.

Indirect bidders, which included foreign investors, were awarded 58.9% of the total, the lowest since November 2019, and lower than the 61.9% in April.

Post-auction, U.S. 30-year yields, which move inversely to prices, rose 6.6 bps to 4.838%. Earlier in the session, Treasuries showed little reaction to data showing initial jobless claims dropped by 13,000 to a seasonally adjusted 228,000 for the week ended May 3. Economists polled by Reuters had forecast 230,000 claims. A separate report showed nonfarm productivity, which measures hourly output per worker, fell at a 0.8% annualized rate in the first quarter. That was the first decline since the second quarter of 2022 and followed a 1.7% growth pace in the October-December quarter.

Treasuries also reacted little to the data.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Kirsten Donovan)