Treasury yields opened modestly lower coming out of overnight trading Thursday and then saw a good further rally in the New York morning before stabilizing at the day’s best levels through the afternoon, resulting in substantial gains across the curve at the close. The gains in Treasuries were mirrored by renewed losses in equities and credit. The S&P 500 fell 1.2% and the IG CDX index widened 5 bp, the worst performances for both since February, ahead of what’s expected to be another disappointing corporate earnings reporting season kicking off next week, at least in absolute growth terms. Consensus is for a 10% year/year decline in Q1 S&P 500 earnings (-5% ex energy) according to Bloomberg, worst since 2009 and fourth straight decline. We’re in an earnings recession, and the corporate credit cycle is inflecting into what’s expected to be a much bigger high yield default cycle in dollar terms than the TMT bust in the early 2000’s because the corporate debt market is so much bigger now. Whether or not stock prices and credit spreads have adequately priced it in, that’s a bad backdrop for economic growth, as Chair Yellen noted last week: “Although prices in these markets have since largely returned to where they stood at the start of the year, in other respects economic and financial conditions remain less favorable than they did back at the time of the December FOMC meeting. Thursday the 2-year yield fell 4 bp to 0.69%, 3- year 5 bp to 0.82%, 5-year 6 bp to 1.14%, 7-year 6.5 bp to 1.45%, 10-year 6.5 bp to 1.69%, and 30-year 6.5 bp to 2.51%. Real yields rallied solidly but couldn’t keep up with nominals, so TIPS inflation break-evens were down modestly and have now unwound most of the gains posted last week in response to Yellen’s speech. The 5-year TIPS yield 4.5 bp to -0.41%, 10-year 5 bp to 0.10%, and 30-year 4 bp to 0.78%. Those real yields were all low closes in nearly a year, but break-evens were down about 2 bp with the bigger rally in nominals.