U.S. Treasury yields fell on Friday as investors continued to weigh the prospect of further interest rate hikes by the Federal Reserve.
The yield on the benchmark 10-year Treasury was trading at 3.969% after falling 10 basis points. The 2-year Treasury yield was last down by more than 4 basis points at 4.863%. During Thursday's trading session it had climbed to levels last seen in 2007.
Yields and prices move in opposite directions. One basis point is equivalent to 0.01%.
Traders have been watching 4% as the key level on the 10-year that could trigger another down move in stocks. At times this week when the 10-year rate rose above that point, stocks retreated. The 10-year Treasury is a benchmark rate that influences mortgages and car loans so a breakout in the yield could ripple through the economy.
"We think the narrative that Federal Reserve keeps interest rates higher for longer is intact," said Rhys Williams, chief strategist at Spouting Rock Asset Management. "But we also believe that the cumulative impact from the Fed hikes already implemented, quantitative tightening, some fiscal discipline, will eventually lead to unemployment rising, and a soft landing in the second half of the year is much more likely than no-landing."
Throughout the week, several Fed officials indicated that interest rates could go higher still and uncertainty about whether the central bank could increase the pace of rate hikes again has spread. At its latest meeting, the Fed implemented a 25 basis point rate increase, a slowdown from previous hikes.
On Wednesday, Minneapolis Fed President Neel Kashkari said he would consider a 50 basis point rate hike, while Atlanta Fed President Raphael Bostic on Thursday advocated for continued 25 basis point increases.
Many investors had been hoping for the central bank to pause rate hikes this year as they fear elevated rates could cause the U.S. economy to contract.