By Daniel Kruger 

Benchmark Treasury yields touched fresh 2019 intraday lows Thursday, a sign the Federal Reserve's caution has boosted investors' worries about the outlook for the global economy.

The yield on the benchmark 10-year U.S. Treasury note, a reference for borrowing costs on everything from mortgages to corporate debt, settled at 2.537%, unchanged from Wednesday, which are the lowest closes since Jan. 11, 2018. It dipped as low as 2.499% in intraday trading before recovering; that was the yield's lowest intraday level in more than a year.

One key measure of investors' economic expectations, the gap between the yields on three-month and 10-year Treasurys, hit its narrowest since August 2007, at 0.064 percentage point. Investors and Fed officials closely watch the dispersion of short- and longer-term yields, known as the yield curve, because the three-month yield has exceeded the 10-year yield ahead of every recession since 1975.

As yields fell and the curve flattened, investors punished bank stocks, with Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. posting two-day declines of 3% or more. The KBW Nasdaq Bank Index of large U.S. commercial lenders notched a two-session decline of 4.5%.

A flatter yield curve hurts bank stocks because it narrows the gap between what lenders pay on deposits and charge on loans, a spread known as the net interest margin. Meanwhile, investors see falling bank shares as a troubling sign because a thriving financial system is considered crucial to a healthy economy.

Major U.S. stock indexes rose, underscoring how the Fed's shift has investors struggling to reconcile solid U.S. economic data with signs of slowdown elsewhere. The Fed's halt to interest-rate increases has removed fears that the central bank will lift borrowing costs until they hurt economic growth, while raising worries that the economy is slowing on its own.

The move in yields is "a great indicator of the pressures in the economy, " said Matt Freund, co-chief investment officer for fixed-income at Calamos Investments.

Projections released Wednesday after the central bank's meeting showed 11 of the 17 Fed officials who play a role in interest-rate policy didn't think the bank would need to raise rates at all this year, up from two in December.

Most officials now also see the Fed raising rates just one more time in the next three years, down from an estimate of three times in December.

The yield on the two-year Treasury note, which tends to move with investors' expectations for central-bank policy, settled Thursday at 2.411%, its third-lowest close of the year.

Some investors said the Fed's shift could help boost stock prices by lowering debt costs and promoting investment, which could lift corporate earnings.

"I'm not sure you have to reconcile the two" signals sent by stocks and bond yields, said Richard Nackenson, who manages midcap stocks at Neuberger Berman. "What I'm seeing is the Fed has created a more favorable environment for earnings growth and earnings sustainability."

And with inflation showing few signs of accelerating, lower rates could support growth, investors said. Muted inflation helps preserve the value of government bonds by preserving the purchasing power of their fixed payments.

"I don't think the bond market is sending as much a recession signal as a message that the Fed should cut rates," said Katie Nixon, chief investment officer at Northern Trust Wealth Management. The evolution in the central bank's approach signals "the Fed's not going to kill this cycle," she said.

--Sam Goldfarb contributed to this article.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

(END) Dow Jones Newswires

March 21, 2019 19:54 ET (23:54 GMT)