The U.S. Treasury paid the highest yield in a 10-year notes auction this century, as investors demand increasingly higher returns to finance spendthrift governments.

The department auctioned $39 billion in 10-year notes Wednesday at a yield of 5.300%, the highest since an auction held in November 2000, which had a high yield of 5.865%.

Demand indicators were robust and the auction cleared at a lower cost than market yields at the time.

Following the sale, the 10-year Treasury yield dropped to 5.273% from 5.316%. It had traded as high as 5.361% earlier in the day, its highest intraday level since early 2002.

The decline might be an indication that markets expect the Trump administration to rein in the yield that influences borrowing costs across the economy.

"I think the market is saying, 'we see the administration declaring war on the 10-year yield at high levels, and we think they're going to win or at least have some meaningful impact on it,'" said Alex Morris, CEO at F/m Investments.

Morris noted the 10-year drives mortgage rates, affecting a vast swath of Americans.

"They're going to try everything they can to get that number lower and there's money to be made riding that trade along with them," Morris said.

Yields, however, remain close to multidecade highs as markets price in a hawkish Federal Reserve potentially raising interest rates in coming months. Minutes of the Fed's latest meeting, when it raised rates for the first time in three years, didn't show policy makers were in a rush to do it again this month. The minutes were released an hour after the 10-year note auction.

Geopolitics also remains a focus for global bond markets after Iran intensified attacks on tankers in the Strait of Hormuz in recent days, driving oil prices higher. Brent crude oil traded at $100 a barrel.

Danske Bank analysts see a risk of further pressure on long-dated Treasurys.

"The pressure is on the long end of the U.S. Treasury curve given not only supply of Treasurys but also from the hyperscalers," Jens Peter Sorensen, chief analyst at Danske, said in a note before the auction.

"We do see the risk of 10-year and 30-year Treasurys hitting 6% as investors demand a higher premium for the long end," he said.

Bonds are also under pressure in Europe. France's budget talks, and accompanying nationwide protests in the country stir nerves in Europe, leaving French government bonds, or OATs, yet again underperformers in the eurozone.

The 10-year French OAT yield rose 17 basis points to 4.923%, while the 10-year German Bund yield was up 3.3 basis points to 3.507%.

"France is quickly becoming the focus of the European bond selloff," Mitch Reznick, head of cross-border credit at Federated Hermes Limited, said in a note.

The 10-year OAT-Bund yield spread was last at 139 basis points, staying below Friday's peak just shy of 159 basis points, according to Tradeweb.

"The velocity of the move matters," Reznick said. Investors are abandoning French government bonds for quality in German Bunds, which is magnifying the spread of the two wider.

In an interview with The Wall Street Journal, France's Finance Minister Roland Lescure said the government is prepared to exercise special constitutional powers and circumvent parliament to pass billions in spending cuts if negotiations stall over the 2027 budget. He also said he was willing to negotiate on all aspects of the budget, but he has two red lines: sticking to a maximum budget deficit of 5% of gross domestic product and avoiding any changes that hurt growth.

Opposition far-right leader Marine Le Pen's proposal for a "golden rule" debt brake and 140 billion euros ($157.65 billion) in savings by 2032 "directionally targets fiscal discipline, yet implementation faces steep constitutional hurdles," Patrick Munnelly, market strategist at Tickmill Group, said in a note.