*

10-year yields head for biggest weekly increase since 2001

*

30-year yields set for biggest weekly gain since 1982

*

Traders remain cautious after volatile week

(Updated in New York afternoon time)

By Karen Brettell

April 11 (Reuters) - Benchmark U.S. 10-year Treasury

yields were on track for their biggest weekly increase in more

than two decades on Friday as U.S. President Donald Trump's

erratic approach to tariffs prompted global market dislocations

and forced selling.

Hedge funds and other asset managers offloaded bonds this

week after getting margin calls and posting sharp losses from

market volatility, analysts said.

Leveraged investors in particular have been hurt by market

whipsaws after Trump last week announced bigger-than-expected

tariffs on trading partners, but then offered a 90-day pause for

most countries on Wednesday.

Rumors of selling, or lack of buying, by foreign investors

are adding to concerns over the market.

Lawrence Gillum, chief fixed income strategist for LPL

Financial, called it a "perfect storm," with concerns about

sticky inflation also part of the move.

"When you start to have investors from retail to

institutional to sovereign wealth funds potentially selling

bonds just because of the elevated volatility, you know it's one

bad story after the other in the fixed income market," he said.

Trump cited volatile moves in markets, including bonds, as a

factor behind his about face on Wednesday, saying that people

were "getting yippy."

CME Group has also raised its margin requirements on

interest rate futures, which "feeds into the market being

concerned about the basis trade," said Molly Brooks, U.S. rates

strategist at TD Securities.

The unwind of basis trades, a popular strategy where

investors seek to profit from the difference between cash

Treasuries and futures prices, has been cited as a large factor

behind this week's volatility.

The 10-year note yield was last up 10.3 basis

points on the day at 4.495% and reached 4.592%, the highest

since February 13. It is on track for the largest weekly

increase since 2001.

Thirty-year bond yields rose 3.1 basis points to

4.880%. The yields reached 5.023% on Wednesday, the highest

since November 2023. They are heading for the largest weekly

increase since 1982.

Longer-dated debt has taken the brunt of this week's selloff

on concerns over the long-term U.S. fiscal outlook. Falling bond

prices lift bond yields.

The prospect of a retreat by foreign investors as a

result of Trump's policies is raising concerns about who would

replace them as buyers of U.S. debt.

"There's a question of who comes in and are we able to

stopgap it if there's a potential decrease in demand," said

Brooks.

Some analysts are also concerned that Trump's policies

will erode the role of the U.S. dollar as a reserve currency,

and U.S. debt as a safe haven investment.

Short-term yields have held at relatively lower levels

than longer-dated debt as traders bet that the Federal Reserve

may cut interest rates sooner if tariffs slow the economy.

The interest-rate sensitive two-year yield rose

9.4 basis points to 3.941%. The yields reached 4.039% on

Wednesday, the highest since March 27, and are on track for the

biggest weekly gain since September.

The yield curve between two- and 10-year note yields

was little changed at 56 points after reaching 74

basis points on Wednesday, the steepest since January 2022. The

curve is on track for its largest weekly steepening move since

October 2023.

Strong auctions of 10-year and 30-year debt on Wednesday and

Thursday helped stabilize the market somewhat, but many

investors remain wary of buying bonds until there is further

improvement in liquidity.

"U.S. Treasuries are still considered liquid relative to

other asset classes but overall liquidity this week has been on

the poorer side as risk appetites of both buyers and sellers

have been curbed," said Phyllis Sim, a U.S. rates trader at

financial services firm StoneX.

Analysts say that further deterioration in bond liquidity

could prompt the Federal Reserve to step in to improve market

functioning.

The Fed should intervene in markets only reluctantly and in

a true emergency, Minneapolis Fed President Neel Kashkari said

on Friday in the most explicit comments yet from a Fed official

about responding to the market volatility.

Yields dipped only briefly after data on Friday showed that

U.S. monthly producer prices unexpectedly fell in March amid a

sharp decline in the cost of energy products, with tariffs on

imports expected to drive inflation higher in the coming months.

A separate report showed that U.S. consumer sentiment

deteriorated sharply in April and 12-month inflation

expectations surged to the highest level since 1981 amid unease

over escalating trade tensions.