To add to the mystery, U.S. consumer prices rose at their fastest pace in nearly a year in April, the Labor Department said Thursday. The consumer price index, an often-quoted barometer of inflation in the U.S., rose by 0.3 percent last month due to higher food and gas prices. Inflation is on pace to rise 2 percent this year. While not alarming, it is noticeably higher than a year ago.
In a normal environment, investors don't buy bonds at 2.5 percent interest if inflation is running at 2 percent. It's just not worth it.
"It's really confusing, to be honest," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago, who oversees $66 billion in assets. "The bond market thinks there's a risk out there that the stock market isn't seeing."
One explanation is that foreign buyers raced into the U.S. Treasury market looking for safety, causing a distorted move in prices, traders said. Despite their fall, yields of U.S. government bonds are higher than those of some developed economies.
"This flight to quality is overwhelming bond investors," said Tom di Galoma, a fixed-income trader at ED&F Man Capital.
Telecommunications stocks, a popular safety play, did rise Thursday, but barely. AT&T rose 13 cents, or 0.4 percent, to $36.52 while Verizon Communications fell 5 cents, or 0.1 percent, to $47.96.
Once again, investors sold riskier stocks in the technology and biotechnology industries. Facebook, Netflix and Biogen, all companies who have seen large waves of selling in the last several weeks, fell 2 percent or more.
The Russell 2000 index, made up of mostly small, riskier companies, fell 0.7 percent Thursday. The index is down 9.3 percent from its March 4 high, and at one point Thursday, dipped into what is known on Wall Street as a correction. That is when a stock or index falls 10 percent or more from a recent peak.