10-year Treasury yield pulls back to under 3.2% on recession worries

U.S. Treasury yields were lower on Wednesday as risk-off sentiment returned to global markets.

The yield on the benchmark 10-year Treasury note was down 15 basis points to 3.154%, while the yield on the 30-year Treasury bond fell nearly 14 basis points to 3.254%. Yields move inversely to prices.

Concerns over a possible recession have weighed on investor sentiment in recent weeks. Federal Reserve Chairman Jerome Powell on Wednesday told Congress the central bank is “strongly committed” to curb inflation which is running at a 40-year high. Investors are increasingly concerned aggressive monetary tightening would tip the U.S. economy into a recession.

“At the Fed, we understand the hardship high inflation is causing,” the Fed chief said to the Senate Banking Committee. “We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so.”

The Federal Reserve last week hiked interest rates by 75 basis points, its largest increase since 1994, but aggressive tightening could mean exerting further downward pressure on growth.

Recession fears have Wall Street divided over its likelihood, timing and scale. Citigroup is the latest bank to raise its recession odds, up to 50%, pointing to indicators that consumers are starting to pull back on spending.

“The experience of history indicates that disinflation often carries meaningful costs for growth, and we see the aggregate probability of recession as now approaching 50%,” read a note from Citigroup.

UBS Global Wealth Management said in a note that investors will need to see compelling evidence that inflation is cooling before a turnaround in market sentiment becomes likely.

“Inflation control today is less about wages and more about profits and pricing power. But the questions for investors are: Has consumer price inflation (or just gasoline prices) become the inflation target? With forward guidance trashed, why should anyone believe anything Powell says?” said UBS chief economist Paul Donovan.

“Markets are flip-flopping between recession fears and inflation fears. Today it is recession fears. Real wage growth is terrible in most major economies. However, consumers are cutting savings rates or increasing borrowing in order to support demand—limiting the growth slowdown.”