By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Yields on 2-year Treasury notes inched closer to a record low before recovering Friday, while 10-year yields rose modestly, after revised data showed the U.S. economy grew at a pace slower than previously forecast in the first quarter, indicating less momentum for a continuation in the current quarter.
Yields on 2-year notes (UST2YR 0.66, -0.02, -3.53%) , which move inversely to prices, fell as low as 0.63%, within hailing distance of the all-time low around 0.60% set in December 2008. They recently traded down 1 basis point to 0.67%. A basis point is 0.01%.
Yields on 10-year Treasury notes (UST10Y 3.10, -0.04, -1.12%) declined 1 basis point to 3.14%.
On Thursday, 10-year yields closed at the lowest levels since May 2009.
"Treasury prices remain supported by unease over the trajectory of growth, lingering credit stress, stiff regulation, and low inflation," said Nick Kalivas, a market strategist at MF Global.
"The main negative is poor relative value."
Earlier this week, markets got spooked by unexpectedly weak data on U.S. home sales while credit metrics for some peripheral European countries -- the harbinger of major problems in the region in recent months -- crept higher again.
"The market is clearly nervous," said strategists at Barclays Capital.
"The past few trading sessions have seen risky assets across markets underperform as investors have flocked to the safe haven of the U.S. dollar and U.S. Treasurys," they said.
On the domestic front, gross domestic product rose at an annualized 2.7% rate, down from the previous estimate of 3%, according to the Commerce Department's final estimate of first-quarter growth reported earlier Friday. See more on GDP revision.
Treasury prices held the line on small gains after a private report said U.S. consumers' sentiment improved in June. See more on sentiment reaching a two-year high.
Trading may be subdued as Group of 20 leaders begin a meeting in Toronto, expected to focus on efforts to support global economic growth while many countries move towards reducing fiscal deficits. Read more about G-20 meeting.
There is no doubt that "the European austerity mantra will have an ongoing positive for fixed income," said John Spinello, Jefferies & Co. strategist. "European growth will remain hampered."
Meanwhile, the Federal Reserve keeping interest rates near zero and creeping worries about a double-dip back into recession may require more drastic measures "will be the message in G-20 as austerity at this point is nothing but detrimental to the global economic landscape," Spinello said.
