US Treasuries advanced after a strong 10-year note auction signaled that buying demand is starting to emerge as yields climbed to multi-decade highs.

The Treasury Department on Wednesday sold $39 billion of 10-year notes at a high yield of 5.3%, 1.88 basis points below the market yield just before the auction. Long-dated Treasury yields gave back earlier gains following the auction results.

Monty Gandhi, a rates strategist at Sumitomo Mitsui Banking Corporation, said, "The result shows that large investors with deep pockets are finally starting to find current yield levels attractive. When yields were around 5%, we heard some large investors say they were covering shorts, and I guess they are now slowly re-entering the market."

The 10-year yield was little changed at 5.28%, below an intraday high of 5.36%, the highest level since 2002. The 30-year yield was roughly flat at 5.66%. Two-year Treasuries outperformed other maturities, with the yield falling about 3 basis points to 4.77%.

US Treasury Secretary Scott Bessent, speaking at a White House event on Wednesday, again addressed rising yields, describing them as a "global phenomenon." He said, "Unlike other countries, the issue for the US is real interest rates, in other words, it is not driven by inflation but by economic growth. US economic growth is strong." Bessent also reiterated that once the Iran conflict eases, energy costs will fall and rates across the curve will retreat.

Wednesday's auction results showed that current yield levels are beginning to attract buyers. The bid-to-cover ratio rose to 2.77 times, the highest since 2016. The share allocated to non-dealers reached a record 97.5%. On Thursday, a $22 billion 30-year Treasury auction will be held, with the offering yield potentially the highest since 2000. Afterwards, the US Treasury will also conduct a bond buyback, or purchase up to $6 billion of Treasuries with maturities of 20 to 30 years.

The reversal in long-term yields came after some stabilization had already appeared at the front end of the curve. Last week's weaker-than-expected inflation and labor market data, along with relatively dovish comments from central bank officials, pushed the market to lower expectations for further Federal Reserve tightening. Minutes released on Wednesday showed that all 19 Fed officials supported a September rate hike, with many believing it would help guard against further intensifying inflation pressures. Interest rate swaps show about a one-in-four chance of a Fed rate hike this month, with the market convinced there will be one more hike this year.

John Briggs, head of US rates strategy at Natixis, said, "Over the past week, there have been some signs that the market is trying to stabilize, especially at the front end of the curve. Now at least the back end is starting to show signs of demand as well. I think it is too early to declare victory, but at least it is a start."