Bond yields tumbled on Thursday as investors flocked to the safety of government debt and the odds of a US recession appeared to be growing.
The Atlanta Fed lowered its estimate for second-quarter GDP on Thursday to minus 1%, from +0.3% on Monday. The latest estimate comes after first-quarter GDP shrank at a 1.6% annual pace in a revised reading.
The yield on the 2-year Treasury TMUBMUSD02Y,
declined 12.8 basis points to 2.925% versus 3.053% Wednesday afternoon. Yields move in the opposite direction to prices.
The yield on the 10-year Treasury TMUBMUSD10Y,
fell 11.8 basis points to 2.973% from roughly 3.09% in the previous session.
The yield on the 30-year Treasury TMUBMUSD30Y,
declined 9.1 basis points to 3.121% from 3.212% on Wednesday.
Those are the lowest levels for the 2-, 10- and 30-year rates in three weeks, based on 3 pm data, according to Dow Jones Market Data.
What’s driving markets
Yields fell sharply on Thursday as economic growth concerns triggered a global risk-asset selloff and encouraged investors to seek sanctuary in the safety of government bonds. Meanwhile, the latest US inflation reading did little to calm nerves because it contained few indications that price gains will come down as fast as many thought.
Thursday’s data showed the Fed’s preferred gauge of US inflation rose 0.6% in May, tripling from 0.2% in April, largely due to rising costs for gas and food. In addition, the headline rate of inflation over the past year was unchanged at 6.3%.
Meanwhile, the narrower measure of the so-called personal-consumption price index, which strips out food and energy, rose by a relatively modest 0.3% for the fourth month in a row; that was below Wall Street’s 0.4% forecast. And the core rate for the 12 months that ended in May slowed to 4.7% from 4.9% in April.
Other data released on Thursday showed consumer spending slowing sharply in May as Americans turned more cautious because of inflation. Incomes rose a somewhat stronger 0.5% last month, but inflation is still rising faster than wages and leaving most Americans worse off financially.
Weekly initial jobless claims inched lower, falling 2,000 to 231,000 for the week that ended June 25.
Since the beginning of the year, the benchmark 10-year Treasury yield is still up nearly 135 basis points, pushed higher by the Federal Reserve’s rate hikes in response to surging inflation.
What analysts are saying
“The most notable development during the final full trading session of the week was 10-year yields’ move below 3% for the first time since June 10 as buying interest to conclude the half pushed rates across the curve lower,” said BMO Capital Markets strategists Ben Jeffery and Ian Lyngen.
“While that was the most eye-catching development, the belly of the curve was the outperformer as 5-year rates probed 3% as well, and the breakdown of the price action resonates with the move in breakevens and the implications for the Fed, ” they said in a note. “The lagged influence of monetary policy means that any tightening executed this year holds little bearing on 2022’s realized inflation prints.”