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Bond Report: Treasury yield curve flattens as S&P sits on verge of bear market, 10-year rate falls below 2.82%

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Treasury yields ticked higher Friday, with haven-related demand for government paper appearing to fade as a stock-market selloff that’s taken the S&P 500 index to the brink of a bear market let up.

What yields are doing
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    2.864%

    was at 2.87%, up from 2.854% at 3 p.m. Eastern on Thursday.
  • The 2-year Treasury note yield
    TMUBMUSD02Y,
    2.632%

    was at 2.637%, up from 2.611% Thursday afternoon.
  • The yield on the 30-year Treasury bond
    TMUBMUSD30Y,
    3.073%

    was at 3.078% versus 3.065% late Thursday.
What’s driving the market

Treasury yields have slipped back from early May levels that briefly saw the 10-year top the 3.2% level. Meanwhile, equities have extended a slide in volatile trading that’s seen major U.S. stock indexes tumble. Thursday’s close left the S&P 500
SPX,
-0.58%

down 18.7% from its Jan. 3 record close, nearing the 20% pullback that would mark a bear market.

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

Stock-index futures pointed to a bounce for Wall Street on Friday.

Investor risk appetite was lifted after the People’s Bank of China on Friday 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 were 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.

Outside the Box: The U.S. isn’t headed for recession. Nor will it be consumed by inflationary fires.

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