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Bond Report: Flight-to-safety trade sends 10- and 30-year Treasury yields to one-week lows

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Investors flocked to the safety of U.S. government debt on Thursday, sending yields down across the board, after weak U.S. data reinforced the prospects of a 2023 recession.

What’s happening

The yield on the 2-year Treasury
TMUBMUSD02Y,
4.238%

fell to 4.234% from 4.245% on Wednesday. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury
TMUBMUSD10Y,
3.442%

was 3.441% versus 3.503% Wednesday afternoon.

The yield on the 30-year Treasury
TMUBMUSD30Y,
3.478%

weakened to 3.459% from 3.539% late Wednesday.

What’s driving market

Growing risks of a 2023 economic downturn fueled the buying momentum in bonds as Thursday’s trading session wore on.

Data released earlier on Thursday showed that retail sales fell 0.6% in November for the biggest decline in almost a year, while two regional gauges of manufacturing activity pointed to weakness this month. Initial jobless claims dropped to an almost three-month low of 211,000 in early December, indicating layoffs around the holiday season remain low even as the economy softens.

Recession fears were on the upswing after Wednesday’s decision by the Federal Reserve to lift interest rates by a half-percentage-point and to deliver a 2023 median forecast for a 5.1% fed-funds rate target, accompanied by Fed Chair Jerome Powell’s view on the need to keep rates higher for longer.

Read: ‘The Fed is going to overdo it’: Financial markets react to U.S. central bank’s 2023 rate outlook and weak data

Analysts said that financial markets initially had a muted response to the Fed’s actions by the end of Wednesday’s session. That sedate reaction was then replaced by a flight to safety on Thursday, which sent the Dow industrials toward their worst day in three months.

Overseas, the Bank of England and European Central Bank each raised interest rates by a half-point on Thursday.

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