US government debt fell sharply for the second straight day after a $58bn short-term Treasury auction drew weak demand and hedge funds continued to rapidly unwind popular trades.

The benchmark 10-year Treasury yield, which underpins trillions of dollars in assets worldwide, jumped 0.11 percentage points to 4.3 per cent on Tuesday. It has risen almost 0.3 percentage points over the past two days — a large jump for an asset that typically moves in small increments.

Tuesday’s sell-off is the latest sign of how some investors are ditching even very low-risk assets in a dash for cash, as President Donald Trump’s tariffs on major trading partners spark intense volatility in markets. Hedge funds have been critical players in the decline as they have sought to reduce risk in their portfolios and cut back on widespread trades in the Treasury market.