Bond Report: 10-year Treasury yield sinks to lowest since April low after GDP, jobless claims points to economic challenges ahead

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U.S. Treasury yields fell on Thursday as an official snapshot of U.S. growth in the second quarter of this year confirmed the economic devastation caused by the COVID-19 pandemic while weekly jobless claims data suggested the recovery may be stalling again.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.552% fell 3.5 basis points to 0.546%, around its lowest since April 21, while the 2-year note rate TMUBMUSD02Y, 0.121% held at 0.123%. The 30-year bond TMUBMUSD30Y, 1.200% slipped 4.3 basis points to 1.201%.

What’s driving Treasurys?

The U.S. second-quarter gross domestic product fell by a record 32.9% annual pace in the second quarter. Analysts polled by MarketWatch had forecast the U.S. economy to shrink by an annualized 34.6% between the start of April to the end of June. For comparison, the steepest quarterly drop during the 2007-09 Great Recession was 8.4%.

The latest weekly numbers also showed the total Americans applying for new unemployment benefits rose for the second straight week, a sign economic growth could be stalling in late July. Initial jobless claims rose by 12,000 to 1.434 million in the week ended July 25, the Labor Department said Thursday.

On Wednesday, the Federal Reserve cast a downbeat tone on the economic outlook, spurring demand for government bonds. “On balance, it looks like the data are pointing to a slowing in the pace of the recovery,” Fed Chairman Jerome Powell said.

What did market participants’ say?

“The bond market is telling you in the price action that we are seeing today that it is becoming very concerned that the U.S. economic recovery isn’t going to happen on the timeline that so many had predicted,” said Kevin Giddis, chief fixed-income strategist at Raymond James.

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