U.S. government debt faced intense selling pressure on Wednesday, with the middle of the yield curve hit hardest after September PMI data came in stronger than expected, sparking an early downturn. A $70 billion auction of 5-year notes further deepened the slide, as the awarded yield came in more than 3 basis points above the pre-auction trading level, adding to the bearish tone across the market.

Dollar swap spreads also experienced volatile swings throughout the day, ultimately closing lower after long-end spreads suddenly dropped in the wake of the auction results. Just after 3 p.m. in New York, Treasury yields retreated from their daily peaks but remained broadly higher by 10 to 15 basis points across most tenors, with the 5s30s spread flattening by 6 basis points on the day, having narrowed by as much as 10 basis points earlier following the weak 5-year note sale.

The 2s5s30s butterfly spread jumped roughly 10 basis points intraday, signaling that the middle portion of the curve trailed the two wings. The 5-year auction, which produced a yield 3.1 basis points above the when-issued level, intensified this trend. Bidding metrics also proved lackluster, with primary dealer takedown rising to 15.8%, the highest in two years, while indirect bidders accounted for just 54.3% of the allocation.

Even before the auction, Treasuries were already on shaky ground, with yields climbing to session highs, initially supported by rising oil prices in early U.S. trading and then propelled by the vigorous September PMI report, which pushed the composite index to a five-year peak.

Some turbulence emerged in dollar swap spreads during the afternoon, as long-end spreads dropped suddenly after the auction results were released. The 30-year swap spread fell from around -67 basis points to a daily low of -67.8 basis points, before settling near -66.5 basis points.

As of 4:55 p.m. Eastern Time, the 2-year Treasury yield was up 14.6 basis points at 4.8993%, while the 5-year yield climbed 16.7 basis points to 5.003%. The 10-year yield rose 15.5 basis points to 5.1163%, and the 30-year yield gained 10.2 basis points to 5.4011%. The spread between 5-year and 30-year yields narrowed by about 6.5 basis points to 39.63 basis points, while the 2-year to 10-year gap widened by roughly 0.9 basis points to 21.28 basis points.