investors react to hot wholesale inflation

U.S. Treasury yields fell Friday as investors reacted to a stronger-than-expected January wholesale inflation report, and a tumbling stock market amid rising fears of artificial intelligence hurting the economy.

The benchmark 10-year Treasury yield fell more than 5 basis points to 3.962%, while the 30-year Treasury bond yield dropped more than 3 basis points to 4.631%. The 2-year Treasury note yield was lower by more than 5 basis points at 3.389%.

One basis point is equal to 0.01%, and yields and prices move in opposite directions.

The latest data point on the economy showed core wholesale prices, stripping out food and energy, rose 0.8% in January, according to the Bureau of Labor Statistics, far above the 0.3% increase economists polled by Dow Jones were anticipating.

The headline reading, including all price components, increased 0.5% last month, again higher than the expected 0.3% gain, according to a Dow Jones consensus estimate.

“Markets did not need the bad inflation news this morning and stocks extended their losses,” said Chris Rupkey, chief economist at FWDBONDS. “Bond yields fell below the psychological 4.00% level before the producer prices report and you can bet your bottom dollar that bond yields are not going to move back above this key level anytime soon.”

Rising fears that artificial intelligence will lead to large job losses, eventually contributing to economic stagflation, in which rising prices are coupled with slowing economic growth, are also hurting economic sentiment.

The Dow Jones Industrial Average tumbled 700 points, or 1.5%, spurring some investors to move to bonds for safety and consequently pushing yields downward.

The potential of AI disruption has increasingly weighed on investors this year, with software stocks slammed on concern that agentic AI will make legacy companies obsolete. The iShares Expanded Tech-Software Sector ETF (IGV) dropped more than 10% just this month, and is nearly 30% off its recent high.

Investors fear layoffs in the sector are looming, especially after Block said Thursday it’s laying off more than 4,000 employees, or roughly half its workforce.

Further unsettling markets are President Trump’s unclear tariff policies and military tensions between the U.S. and Iran. On Friday, Trump said that he’d “love not to” attack Iran, “but sometimes you have to.”

—  CNBC’s Pia Singh contributed to this report