Treasury yields spiked on Wednesday as investors bailed out of what has been perceived as the world's safest instrument on expectations of crumbling foreign demand as tariffs take effect.

The yield on the 10-year Treasury BX:TMUBMUSD10Y spiked to as high as 4.516%. Yields move in the opposite direction to prices.

Yields settled down after China called for dialogue with the U.S. on trade though it made no concessions on tariffs. The 10-year yield was trading at 4.35%, up 4.5 basis points.

The yield on the 30-year Treasury BX:TMUBMUSD30Y was up 5.4 basis points to 4.83%.

"Something has broken tonight in the bond market. We are seeing a disorderly liquidation," said Jim Bianco, president and macro strategist at Bianco Research.

He and others speculated the root cause was not China angrily selling its hoard of U.S. Treasurys, but hedge funds doing so.

There's a strategy called the basis trade in which hedge funds profit by exploiting the difference between Treasury futures and Treasury bond prices, but it depends on relative stable prices in the bond market.

Read: Here's the unsettling reason the world's most important market is getting hammered by Trump's tariffs

Tariffs are devastating to bonds - not only do they have an inflationary impact, but they result in fewer dollars being sent to foreign countries that have traditionally recycled them into financial assets and U.S. Treasury securities in particular.

There are two major auctions coming up to test foreign demand: the U.S. Treasury is auctioning $39 billion of 10-year notes on Wednesday and $22 billion of 30-year bonds on Thursday.