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Bond Report: Longer dated Treasury yields slide for second straight week on economic fears

Long-dated U.S. bond yields fell to their lowest levels in almost two months on Friday, while posting their second straight week of declines, on growing concerns the economy could tip into recession.

What’s happening

The yield on the 2-year Treasury note

declined 10.6 basis points to 2.989% from 3.095% as of Thursday afternoon. That’s the lowest since July 6, based on 3 p.m. levels according to Dow Jones Market Data. The yield is down 14.6 basis points this week.

The yield on the 10-year Treasury note

dropped 12.7 basis points to 2.781% from 2.908% on Thursday. The yield is down 14.8 basis points this week. 

The yield on the 30-year Treasury bond

fell 7.5 basis points to 2.996% from 3.071% in the prior session. The yield is down 9.7 basis points this week.

It was the lowest levels for the 10- and 30-year rates since May 27.

What’s driving markets

Data released on Friday showed worrisome deterioration in the economy. The U.S. services purchasing managers index fell to a 26-month low of 47 in July from 51.6 in the prior month, based on a “flash” survey from S&P Global Market Intelligence.

Thursday also provided ample fodder for those who say the U.S. economy is deteriorating. Weekly jobless claims rose to the highest level since November, the Philadelphia Fed manufacturing index unexpectedly fell deeper into negative territory, and the Conference Board said its leading economic index shows that a U.S. recession around the end of the year and early next is now likely.

The social-media company Snap
the first among the major tech companies which rely heavily on digital advertising to report this quarter, provided more bad news by reporting sales that fell short of expectations late Thursday; executives also declined to provide a financial forecast.

Read: Snap’s dire ad warnings prompt string of downgrades: ‘This stock faces a grim outlook’

The rates team at BofA Securities lowered its year-end forecast for the 10-year yield to 2.75% from 3.5% last week, following its economics team’s call for a mild 2022 recession.

What analysts are saying

“While we haven’t penciled it in yet, there is a rapidly-growing risk of a global recession,” BofA Securities Global Economist Ethan Harris wrote in a note.  

“With each passing month, the underlying inflation picture is getting worse…  A big part of the problem is that even temporary (but sustained) price increases can leave a legacy of higher inflation expectations. Hence, increasingly, central banks need to do part of the dirty work of bringing inflation back down.”

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