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Bond Report: 10-year Treasury yield posts biggest drop since March as Dow, S&P 500 finish lower

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Treasury yields fell Thursday, with the 10-year rate posting its biggest drop since March, as government paper found support from apparent safe-haven flows and stocks continued to lose ground on inflation fears.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.866%

declined 9.5 basis points to 2.815% from 2.918% at 3 p.m. Eastern on Wednesday, after factoring in new issue levels. That’s the largest one-day decline since March 4, based on 3 p.m. levels, according to Dow Jones Market Data. Yields and debt prices move opposite each other.

The 2-year Treasury yield 
TMUBMUSD02Y,
2.573%

dropped 10.9 basis points to 2.520% from 2.629% Wednesday afternoon. That’s the lowest level since April 18.

The 30-year Treasury bond yield
TMUBMUSD30Y,
3.033%

declined 5.5 basis points to 2.985% from 3.04% late Wednesday. That’s the lowest level since April 29.

What’s driving the market?

Yields declined as U.S. stocks continued to be weighed down by stagflation fears on Thursday, putting the S&P 500 
SPX,
-0.13%

on the brink of a bear market before a late bounce that saw indexes end off session lows.

Data released on Thursday showed that the cost of wholesale goods and services rose a milder 0.5% in April versus the prior month, though intense inflationary pressures showed little signs of relenting.

The increase in wholesale prices over the past year slowed to 11% from 11.5%, the government said Thursday. That’s the first drop since the pandemic started, mirroring a decline in the rate of consumer inflation last month.

Meanwhile, U.S. jobless claims settled just above 200,000 during the most recently reported week. Initial jobless claims rose 1,000 to 203,000 in the week ended May 7, the Labor Department said Thursday. Economists had expected claims to fall to 194,000.

What do analysts say?

“The market is really anxious to call a peak in inflation,” said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. in Chicago. “But it’s very likely that we’ll see further price pressures come down the pipeline. What the market should be worried about is that inflation stays higher longer than expected and that’s going to complicate the choices for the Fed.

“If we don’t see more benign price pressures, that all but ensures very minimal growth in the best case and in the worst- case scenario, an outright recession,” she said via phone.

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