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Bond Report: 2- and 10-year Treasury yields have biggest 2-week drop since April 2020 as S&P avoids closing in bear market

Investors poured into U.S. government debt on Friday, sending yields lower across the board for the day and the week, as the S&P 500 index managed to avoid closing in a bear market.

Two- and 10-year rates also had their biggest two-week declines in two years.
The spread between 2- and 10-year rates, as well as the gap between 5- and 30-year yields, shrank in a sign of worry about the economic outlook.

What yields are doing

The 2-year Treasury note yield BX:TMUBMUSD02Y dropped 3 basis points to 2.581% from 2.611% Thursday afternoon. It declined 1.6 basis points this week and  11.5 basis points over the last two weeks, the largest two-week drop since the week that ended April 3, 2020, based on 3 p.m. yields, according to Dow Jones Market Data.

The yield on the 10-year Treasury note

fell 6.9 basis points to 2.785% from 2.854% at 3 p.m. Eastern on Thursday. That’s the lowest level since April 26. It declined 14.7 basis points this week and 33.9 basis points over the last two weeks, the largest two-week decline since the week that ended April 3, 2020.

The yield on the 30-year Treasury bond

dropped 7.1 basis points to 2.994% from 3.065% late Thursday. It declined 9.7 basis points this week and 22.6 basis points over the last two weeks, the largest two-week decline since the week that ended Dec. 3, 2021.

What’s driving the market

Treasury yields slid on Friday as investors flocked to the safety of government bonds and sold off stocks before Dow industrials and the S&P 500 index managed to stage a rebound in the final minutes of trading. Dow industrials

and the S&P 500

eked out slight gains for the day, with the latter averting the closing level that marks a bear market.

Fears of stagflation —- a combination of persistent inflation and stagnant growth —- are on the rise and have been key market drivers, morphing into a “growth scare” in stocks for much of the day. Meanwhile, the Federal Reserve is seen as sticking with its plans to aggressively raise interest rates and shrink its balance sheet in an effort to get price pressures under control.

See: ‘Growth scare’ permeates U.S. stocks as estimated $5 trillion to $8 trillion of household wealth evaporates in five months

Investor risk appetite was lifted briefly earlier 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.

No major U.S. economic data was released Friday.

What analysts are saying

With economic data starting to waver, “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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