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Tags: bond | yields | economic | rate

WSJ: Falling Bond Yields Reflect Fears of Economic Slump

By    |   Monday, 06 April 2015 06:00 AM EDT

The 10-year Treasury yield hit a two-month low of 1.84 percent Friday amid investor concern that the economy may be weakening.

The yield has slid from 2.17 percent Dec. 31. Investors are concerned over the weakness that has popped up in recent economic figures, such as retail sales, which slid 0.6 percent in February, the third straight monthly decline.

"It is like every time when the Fed tries to raise interest rates, there is a disappointing release that tells them to be patient," Mark MacQueen, a portfolio manager at Sage Advisory Services, told The Wall Street Journal.

The Federal Reserve has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008. Many economists expect the Fed to begin raising rates in September.

"If things turn up in the next few months, we could still see a September tightening,'' said Jack Flaherty, portfolio manager at money manager GAM. "If not, then we could see the timing pushed off further."

As for the economy, growth slowed to 2.2 percent in the fourth quarter from 5 percent in the third. And many analysts expect a further slowdown for the first quarter, some to under 1 percent growth.

CNBC Rapid Update, which provides a median of up to 11 analysts' forecasts for economic growth, fell 0.4 percentage point to 1.4 percent for the first quarter, after Monday's news that consumer spending rose only 0.1 percent in February.

Stephen Stanley of Amherst Pierpont Securities forecasts zero growth for the first quarter. "This is turning into a recurrence of last year's nightmare first quarter, when weather drove the GDP figure deep into negative territory," he wrote in a report obtained by CNBC.

The economy shrank 2.1 percent in the first quarter of last year before rebounding to post an expansion of 2.4 percent for the year as a whole.

Stanley and others anticipate a rebound this year too. Economists' median second-quarter projection is for growth of 3.5 percent, according to CNBC Rapid Update.

You can add Morningtar's Robert Johnson and Roland Czerniawski to the list of those a bit skeptical of the economy's near-term strength.

"Following [earlier] jubilation about the U.S. Federal Reserve reducing economic forecasts and not immediately raising rates, the reality of economic activity not booming began to set in" financial market last week, they write on Morningstar.com.

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The 10-year Treasury yield hit a two-month low of 1.84 percent Friday amid investor concern that the economy may be weakening.
bond, yields, economic, rate
Monday, 06 April 2015 06:00 AM
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