US Treasuries traded mixed on Wednesday after a $39 billion 10-year note auction drew strong demand, signaling that some large investors are beginning to re-enter the market as yields climb to multi-decade highs.

Following the auction results, long-dated Treasury yields pared some of their intraday gains. The US Treasury's $39 billion 10-year note sale cleared at a high yield of 5.3%, notably below the pre-auction secondary market yield, indicating robust investor demand.

The bid-to-cover ratio rose to 2.77, the highest level since 2016, while the share allocated to non-dealer investors reached a record 97.5%.

Monty Gandhi, rates strategist at Sumitomo Mitsui Banking Corporation (SMBC), said the auction shows that large, well-capitalized investors are finally starting to view current yield levels as attractive. He noted that when yields approached 5% earlier, some large investors had already begun unwinding short positions in Treasuries and may now be gradually rebuilding long exposure.

After the auction, the 10-year Treasury yield fell back to around 5.28%, well below the intraday peak of 5.36% — a level not seen since 2002. The 30-year Treasury yield rose only about 1 basis point to 5.67%, having climbed further earlier on rising oil prices. The short end of the curve outperformed, with the 2-year yield falling about 3 basis points to 4.76%.

Global bond markets have been under sustained pressure in recent weeks. Elevated energy prices have intensified concerns about resurgent inflation and further central bank rate hikes, while corporations raising large sums for artificial intelligence infrastructure are also competing with governments for capital.

On Wednesday, Brent crude briefly topped $102 per barrel after Iran again attacked ships in the Strait of Hormuz. Evelyne Gomez-Liechti, multi-asset strategist at Mizuho International, said the bond market is currently caught between two forces: on one hand, absolute US Treasury yields have reached quite attractive levels; on the other, inflation risks from higher oil prices have yet to fade.

US Treasury Secretary Bessent said again at a White House event on Wednesday that the recent rise in bond yields is a "global phenomenon." He argued that, unlike other countries, the increase in US yields mainly reflects higher real interest rates rather than worsening inflation expectations, largely because US economic growth remains strong. Bessent also reiterated that once the Iran conflict eases, energy prices are expected to decline, and market rates across maturities will then fall as well.

Nevertheless, the 10-year note auction showed that current high yields have begun to attract capital. The market will next focus on Thursday's $22 billion 30-year Treasury auction, where the yield could reach the highest level since 2000. After the 30-year sale, the US Treasury will also conduct a bond buyback, planning to purchase up to $6 billion of Treasuries with remaining maturities of 20 to 30 years. This will be the fourth such operation since the Treasury expanded its buyback program as long-term yields rose to multi-year highs.

Meanwhile, the short end of the Treasury yield curve has recently shown some signs of stabilization. Weaker-than-expected inflation and labor market data released last week, combined with relatively dovish policy signals from several central bank officials, led the market to lower its expectations for further Federal Reserve rate hikes. The minutes of the Fed's September meeting showed that all 19 officials supported the rate hike that month, with many arguing that raising rates was necessary to prevent inflation pressures from intensifying further.

However, interest rate swap markets currently price about a 25% probability of a Fed hike this month, while another increase by year-end is fully priced in. John Briggs, head of US rates strategy at Natixis, said some stabilization has already appeared over the past week, especially at the short end of the curve, and now the long end is also beginning to show investor demand. While it is still too early to conclude that the Treasury selloff is over, the strong 10-year auction at least sends a positive signal.