By Sam Goldfarb 

U.S. Treasurys rallied and corporate bonds slumped Friday, reflecting investors' caution following a three-day rally in stocks and other riskier assets.

The yield on the benchmark 10-year U.S. Treasury note settled at 0.744%, according to Tradeweb, compared with 0.806% Thursday.

Yields, which fall when bond prices rise, declined as the Dow Jones Industrial Average dropped roughly 4%, giving up some of its more-than-20% gain from the previous three days.

The decline in yields signaled to some observers that the bond market is functioning more normally after weeks in which investors sometimes sold both Treasurys and stocks -- a sign that they were unloading anything they could to raise cash rather than turning to Treasurys for safety.

Friday's move, though, also reflected continued anxiety about the economic outlook, as investors grappled with the implications of the coronavirus pandemic and the aggressive measures to contain it.

This week's rally in stocks has been fueled in part by optimism among investors that the Federal Reserve and Congress might limit the economic wreckage from shutdowns, border closures and job losses through a series of extraordinary monetary and fiscal interventions.

At the end of the week, however, investors are still faced with the "reality that even a $2 trillion fiscal stimulus may not be fully sufficient in order to avert a rather painful recession," said Jon Hill, a U.S. interest-rates strategist at BMO Capital Markets.

In keeping with investors' reduced appetite for risk, corporate bonds were having a more difficult session following a recent bright patch.

At Friday's close, the cost of protecting $10 million investment-grade corporate bonds against default for five years using credit derivatives was around $110,000, according to IHS Markit's CDX index. That was up from $96,700 at Thursday's close, though still down from $150,800 last Friday.

New 3.05% 10-year notes issued by 3M Co. on Wednesday traded at a yield that was 2.09 percentage points above the comparable Treasury yield, according to MarketAxess, up from a 1.9-percentage-point spread at the end of Thursday though down from their initial spread of 2.25 percentage points.

The spread on McDonald's Corp.'s new 3.6% notes due in 2030 traded as wide as 2.54 percentage points, compared with 2.46 percentage points Thursday, before tightening back to 2.43 percentage points.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

March 27, 2020 18:06 ET (22:06 GMT)

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