US Treasury yields fell on Thursday in a volatile session, reversing the prior day's sell-off, as safe-haven demand rose on tensions between the United States and its major trade partners ahead of the Group of Seven summit.
US President Donald Trump stuck to his tough stance against top allies ahead of the summit on Friday and Saturday in Charlevoix, Quebec, after imposing tariffs on steel and aluminium imports from Canada, Mexico and the European Union last week.
Trump's stand rekindled fears of a trade war that could harm economic growth worldwide, analysts said.
"Trade tension has been ramping back up. The synchronized global growth story which we have been speaking about since last year has frayed a bit," said Ilya Gofshteyn, global macro strategist at Standard Chartered in New York.
Market activity had been modest before a spike in volume in the futures market coincided with a surge in bond prices in afternoon trading.
At 1:34 p.m. (1734 GMT), the volume of 10-year Treasury futures began to jump, quadrupling in two minutes to 46,972 contracts. The price on the September 10-year T-note contract added 11/32 to reach a session high of 120 before ending at 119-19/32, up 10/32 on the day, according to CME Group data. There was no market consensus behind the brief price and volume surge. Traders cited a range of explanations, including a slump in emerging market currencies, an erroneous order, or "fat finger" trade; and technical buying after the 10-year yield broke below the 2.92 percent level.
In the cash market, benchmark 10-year Treasury notes' yield was down 4.5 basis points at 2.930 percent after hitting a four-day low at 2.884 percent. It reached a near two-week high at 2.994 percent earlier on Thursday. Trade concerns overshadowed speculation about the outcome of the European Central Bank's debate next week about ending the expansion of its 2.55 trillion-euro ($3 trillion) bond purchase program in September.
Traders also waited for the US Federal Reserve to signal how many times it would raise interest rates for the rest of 2018 as domestic labor conditions tighten and inflation moves closer to its 2 percent goal.
"If the ECB is not blinking on Italy, why should the Fed?" said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York, said of Italy's recent struggle to form a government. Earlier on Thursday, the Labor Department said first-time filings for jobless benefits unexpectedly declined last week to 222,000.
Traders widely expect the US central bank to raise key overnight borrowing costs by a quarter point to a 1.75 percent to 2.00 percent range next Wednesday.
US yields have retraced some of last week's steep drop tied to political turmoil in Italy. They had moved in step with their European counterparts on anxiety Italian ruling parties would implement economic policies that balloon the country's indebtedness and challenge rules to stay in the euro zone.
The 10-year German Bund yield edged up 0.6 basis point to 0.468 percent following a 9 basis-point jump the day before, which was its biggest one-day rise in nearly a year.
This week's heavy supply of higher-yielding corporate bonds has supported Treasury yields, analysts said.
So far this week, companies raised about $33.15 billion in the investment-grade bond market, according to IFR, a unit of Thomson Reuters.
Meanwhile, the US Treasury Department said on Thursday it would sell a combined $68 billion in three-year, 10-year and 30-year securities next week.