NEW YORK (MarketWatch) -- Treasury prices declined Friday, pushing yields up from multi-year lows seen during the previous session, as U.S. equities struggled to stem two days of massive declines to culminate what's been a brutal week around the world for stocks.
Responding more to rapid late-day gains in stocks than the news itself, Treasurys headed towards the lows of the day following reports that President-elect Barack Obama selected as his Treasury Secretary Timothy Geithner, the president of the New York Federal Reserve and a former Treasury official.
Ten-year note yields ) rose 18 basis points, or 0.18%, to 3.20%. The yield on the benchmark security reached 2.99% on Thursday, the lowest in at least five years.
Two-year note yields also rose, adding 10 basis points to 1.08%.
Thirty-year bond yields increased to 3.70%, coming off record lows touched Thursday.
"Rates will likely trade with equities, which are catching their breath after yesterday's saga," said T.J. Marta, fixed-income strategist at RBC Capital Markets.
Yields down, unemployment up
Longer-term Treasurys are having their best week since October 1987, with yields falling more than half a percentage point since last Friday.
Treasury yields could head even lower as the economic picture continues to deteriorate, said economists at Goldman Sachs.
The firm revised its forecasts Friday, predicting the gross domestic product will shrink rapidly in the current quarter and through coming two quarters, while unemployment will reach 9%, from 6.5% currently.
If unemployment reaches that level, it would be "unequivocally the worst single downturn on record since World War II," economists led by Jan Hatzius wrote in a note.
Ten-year note yields could fall as low as 2.75% in the first quarter of 2009, the firm said, lower than its previous prediction of 3.50%.
Goldman Sachs expected the Federal Reserve to lower its target interest rate for overnight loans between banks, known as the fed funds rate, to 0.50% next month, which would be the lowest on record, from 1% currently.
Richmond Federal Reserve President Jeffrey Lacker said Friday the U.S. central bank has "a wide variety of choices" to conduct monetary policy if interest rates fall to zero. He too expects a significant decline in gross domestic product in the current quarter.
Chicago Fed President Charles Evans said the country is in for a "protracted period" of weakness.
