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Bond Report: Two- and 10-year Treasury yields have biggest two-week drop since April 2020 as S&P avoids closing in bear market

Treasury yields moved lower across the board on Friday as major U.S. stock indexes turned lower, putting the S&P 500 index on the edge of a bear market and Dow industrials on the way to its longest string of weekly losses in 90 years.

The Treasury yield curve flattened, with the spreads between 2- and 10-year maturities shrinking to 22 basis points and pointing to concerns about the economic outlook. The spread between 5- and 30-year yields narrowed to 19 basis points.

What yields are doing

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.799%

was at 2.816% versus 2.854% at 3 p.m. Eastern on Thursday.

The 2-year Treasury note yield
TMUBMUSD02Y,
2.595%

was at 2.6% versus 2.611% Thursday afternoon.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.000%

was at 3.016% versus 3.065% late Thursday.

What’s driving the market

Treasury yields resumed their slide on Friday from levels seen in early May, when the 10-year topped 3.2%. Meanwhile, in equity markets Dow industrials, the S&P 500 index and the Nasdaq Composite all gave up earlier gains as the New York morning wore on. The S&P 500
SPX,
-1.35%

sat on the edge of the 3,837.25 closing value that would mark the technical definition of a bear market.

See: Selloff puts S&P 500 on bear market’s doorstep. If history is a guide, there’s more pain ahead.

Investor risk appetite was lifted only briefly on Friday, after the People’s Bank of China lowered its benchmark lending rate for loans of five years or more, a key reference rate for home mortgages. The country has been battling COVID outbreaks, with lockdowns in industrial hubs such as Shanghai blamed for weak factory and consumer activity data in April.

Fears of stagflation —- a combination of persistent inflation and stagnant growth —- are on the rise and have been key market drivers, analysts said. The Federal Reserve is seen sticking with its plans to aggressively raise interest rates and shrink its balance sheet in an effort to get price pressures under control.

No major U.S. economic data is on tap for Friday.

What analysts are saying

Thursday’s price action made it clear, “with economic data starting to waver, that bonds are reassuming their time-tested position as a risk-off hedge against an economic slowdown,” wrote Tom Essaye, founder of Sevens Report Research, in a note.

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