By Natalie DeCoste

The U.S. Treasury yields dropped this Wednesday despite stronger employment numbers for June, revealing investor doubt about the economy’s future.

The yield on the benchmark 10-year Treasury note fell 2.6 basis points to 1.454%, while the yield on the 30-year Treasury bond dipped 2.8 basis points to 2.068%. Yields move inverse to price, falling when bond prices rise. The downward slide in the second quarter of the year came as a shock to many, marking a reversal from the sharp rise of the year’s first three months.

The treasury yield is crucial to the economy as it helps set borrowing costs on everything from mortgages to corporate bonds. Yields are also a closely watched economic barometer, with the longer-term yields in particular tending to rise when the growth outlook improves and decline when it hits a bump in the road.

When the benchmark 10-year Treasury rate quickly climbed to 1.7% in March, many investors on Wall Street went on high alert. The fast rise left people worrying about the Federal Reserve’s potential to go overboard with its support for the economy during the pandemic and putting the country at risk of inflation like it was in the 1970s. Now, things are looking a little different, with some economists speculating that we will not be getting the inflation some expected.

“The 10-year Treasury is signaling that we are not going to get sustained inflation above 2%,” said Kathy Jones, chief fixed-income strategist at Schwab Center for Financial Research.

With the projections for rates over the long term subsiding, indicators point towards a slightly weaker economy, less able to withstand interest-rate increases. The weaker outlook for the economy is most likely tied to investors’ diminished expectation for both fiscal and monetary stimulus.

“There is a growing contingent of market participants that are buying into the idea that we’ve reached peak growth—essentially that the most impressive days of the recovery are behind us,” said Thomas Simons of Jefferies.

Inflation has increased rapidly in 2021, with the consumer-price index jumping 1.4% and core prices, excluding volatile food and energy categories, logging the biggest year-over-year gain in May since 1992. While many investors dismissed the gains as a natural offshoot of the reopening economy, the Federal Reserve chair, Jerome Powell, recently pointed to the recent decline in sky-high lumber prices as a possible sign of things to come.

Investors are still waiting to see how the Fed will respond to the new yield and if it will tighten its monetary policy sooner than expected. However, more critical data is set to come out at the end of this week with the release of Friday’s jobs report from the Labor Department.