U.S. Treasury yields fall to end the week

U.S. government debt prices fell Friday as traders continued to weigh the prospects of a U.S. recession following a a second consecutive quarter of economic contraction.

The yield on the benchmark 10-year Treasury note traded 2 basis points lower at 2.658%, and the yield on the 30-year Treasury bond fell 2 basis points to 3.017%. Yields move inversely to prices.

On Thursday the Bureau of Economic Analysis reported that the personal consumption expenditures price index, an inflation indicator closely watched by the Fed, rose 6.8% from a year ago in June, hitting its highest level since January 1982.

The final reading of the University of Michigan Consumer Sentiment Index came in at 51.5 for July, a slight improvement over the preliminary reading. In June the index fell to an all-time low 50.

The latest U.S. growth reading showed the economy contracted by 0.9%, in what is seen as recession sign.

“The Q2 GDP contraction is fueling fears that the US economy is in recession,” wrote strategists at BCA Research. “Regardless of whether this is indeed the case … there are two key questions that are more relevant for investors. “First, what are the implications for Fed policy? And second, what are the implications for financial markets?”

“On the first point, one clear difference this time around versus previous downturns is the robustness of the labor market,” they added. “In terms of implications for financial markets, the fact that US stocks rallied on Thursday following the disappointing GDP print suggests that equity markets have already discounted the risk of recession.”