What yields are doing
- The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.923%
was at 2.963%, down from 2.973% at 3 p.m. Eastern on Thursday. Yields and debt prices move opposite each other. - The yield on the 2-year Treasury note
TMUBMUSD02Y,
2.832%
was 2.858% versus 2.925% Thursday afternoon. - The 30-year Treasury bond yield
TMUBMUSD30Y,
3.137%
rose to 3.156%, up from 3.121% late Thursday.
What’s driving the market
Treasury yields, which move opposite to price, still rose sharply in the first half of the year as equities slumped in response to inflation running at a multidecade high. Yields have pulled back from highs as fears aggressive monetary tightening by the Federal Reserve and other major central banks could spark a recession have started to eclipse inflation concerns.
The Atlanta Fed lowered its estimate for second-quarter GDP on Thursday to -1%, from +0.3% on Monday. The latest estimate comes after first-quarter GDP shrank at a 1.6% annual pace in a revised reading.
Two consecutive quarters of shrinking GDP is often used as a loose definition of recession, though that’s not the criteria used by the National Bureau of Economic Research, the official arbiter of U.S. business cycles. NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
It was still a brutal second quarter and first half for Treasury and other fixed-income investors. As for Treasurys, the 1.477 percentage point rise seen over the first and second quarter marked the largest two-quarter increase since the second quarter of 1994, according to Dow Jones Market Data, a year that also saw a brutal Treasury selloff as the Federal Reserve delivered a series of aggressive rate increases.
Investors will get a look at gauges of private-sector economic activity on Friday, with the release of the final June reading of the S&P Global U.S. manufacturing purchasing managers index at 9:45 a.m. Eastern and the closely followed Institute for Supply Management manufacturing index at 10 a.m. Eastern. May construction-spending data is also due at 10 a.m.
What analysts say
“As the second quarter came to an end, bond markets continued to rally strongly in what now appears to be a third straight leg down. However, the late rally in bond markets did not do much to change what was an exceptionally challenging environment for any balanced portfolio mix,” wrote economists at UniCredit Bank.
U.S. Treasurys with maturities of more than one year lost 3.8% in the second quarter and 9.1% in the first half, UniCredit said. “Add the negative return contributions (measured by price indices) from the Euro Stoxx 50 at 11.5% (2Q) and 19.6% (1H) and the S&P 500
SPX,
-0.88%
down 16.4% in 2Q and 20.6% in 1H, and there has been no place to hide so far in 2022, except for cash equivalents or selected commodity exposure,” they wrote.
