Treasury yields steadied Friday after a volatile week that saw the benchmark 10-year yield hit four-year highs and U.S. stocks post their worst week in two years.
The benchmark 10-year Treasury yield rose to near 2.85 percent in afternoon trading after earlier dropping to 2.788 percent. On Thursday, the yield came close to a four-year high of 2.885 percent that had helped trigger Monday's stock market sell-off. Bond yields move inversely to prices.
"It's about finding new ranges relative to the stock markets and about liquidity," said Lee Ferridge, North American head of macro strategy for State Street Global Markets. He said the Federal Reserve's balance sheet reduction —an unwind of massive stimulus implemented in the wake of the financial crisis — was playing a greater role in markets than perceptions of future rate hikes.
Bets on fewer rate hikes played out more in shorter-dated Treasurys. The rate-sensitive 2-year Treasury yield traded lower near 2.06 percent after falling earlier to just above 2 percent.
"Any more weakness in stocks may have some believing it will slow the Fed's rate increases," said Bryce Doty, senior vice president of Sit Fixed Income Advisors.
As measured by CME's fed funds futures, the probability of a June rate hike fell below 50 percent from near 55 percent a week ago. Markets were still expecting a quarter-point hike in March.
U.S. stocks overcame a sharp intraday drop to close more than 1 percent higher Friday. But the S&P 500 and Dow Jones industrial average each fell more than 5 percent for the week, their worst since January 2016.