Bond Report: Treasury yields fall sharply, with 10-year at 2.8%, as investors seek safety in government bonds


Investors jumped into Treasurys Thursday morning, driving yields sharply lower, as they sought safety from a stock-market rout that appeared set to continue after the Dow Jones Industrial Average and S&P 500 index suffered their biggest one-day losses in nearly two years.

What are yields doing
  • The yield on the 10-year Treasury note TMUBMUSD10Y, 2.807% fell to 2.794% from 2.884% at 3 p.m. Eastern on Wednesday.
  • The 2-year Treasury note yield TMUBMUSD02Y, 2.611% was at 2.595% versus 2.667% Wednesday afternoon.
  • The 30-year Treasury bond yield TMUBMUSD30Y, 3.016% was at 3.009%, down from 3.07% late Wednesday.
What’s driving the market

Global equities slid Thursday and U.S. stock-indexes opened lower, extending Wednesday’s brutal selloff that left the Dow Jones Industrial Average DJIA, -1.12% down by 1,164.52 points, or 3.6%, and the S&P 500 SPX, -0.55% lower by 4% —- their biggest one-day declines since June 11, 2020. The Nasdaq COMP, +0.10%, however, managed to claw back with a gain in early trading.

Wednesday’s selloff was triggered by disappointing results from retailer Target Corp. TGT, -4.17%, which showed rising costs had cut more deeply than expected into margins, analysts said. Growing fears of a stagflationary environment —- a combination of persistent inflation and stagnant economic growth — continued to reverberate in markets Thursday morning.

See: Next big shoe to drop in financial markets: Inflation that fails to respond to Fed rate hikes

Data released on Thursday showed that initial jobless claims rose to a four-month high of 218,000 last week, but most of the increase appeared tied to just a few states such as Kentucky and California. Claims had been expected to come in at a seasonally adjusted 200,000 for the week that ended May 14, according to economists surveyed by The Wall Street Journal.

The Philadelphia Fed manufacturing index fell sharply to 2.6 in May from 17.6 in the prior month, the lowest level of activity in two years. Economists polled by The Wall Street Journal had expected a 15 reading. Nonetheless, any reading above zero still indicates expansion in the manufacturing sector.

What analysts are saying

“Something happened on the way to the soft landing. With stocks sliding further overnight and risk assets broadly under pressure, investors are beginning to question not only the prudence of Powell’s containing inflation at all costs mantra, but also monetary policymakers’ ability to stay the course,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.

“Powell jawboned the market into materially tighter financial conditions and fully pricing in the hiking campaign, now investors will wait to see if the Fed blinks,” they wrote in a note. “Translating this to the US rates market, we’re encouraged to see the curve flattening continue overnight with 2s/10s sliding to just 19.5 bp after closing Wednesday below the 40-day moving-average.”

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