Jan 9, 2023 - Economy

Bond market sees stronger case for soft landing

Yield on the 10-year Treasury note
Data: FactSet; Chart: Axios Visuals

Yields on government bonds plunged on Friday, as reports suggested that the sought-after soft landing for the economy may be a possibility.

Why it matters: A soft landing — meaning inflation eases, without the economy falling into a recession — would allow the Fed to ease up on the interest rate hikes that crushed the stock and bond markets last year.

State of play: Yields on the 10-year Treasury note plunged after a near-ideal jobs report Friday morning was followed by a closely watched ISM survey release on the services sector that showed a surprise slowdown.

  • Context: Until recently, persistent strength in the services sector was seen by analysts as a reason that the Fed might have to keep hiking interest rates sharply.
  • Falling yields, in turn, perked up the stock market which notched its best day so far this year. The S&P 500 rose 2.3%, driving the index to a tidy gain of 1.5% for the week.

What we're watching: The big inflation update that arrives on Thursday in the form of the Consumer Price Index. If that shows a third straight slowdown, Wall Street will be a happier place.

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