The key 10-year Treasury yield is tumbling to its lowest point in weeks as softening economic conditions fuel speculation of a 'Fed pivot' on rates

• The 10-year Treasury yield fell Thursday to its lowest level in three weeks
• Softer economic data could prompt a "Fed pivot" on interest rates, analysts said.

The widely watched 10-year Treasury note yield sharply dropped during Thursday's session after a rise in weekly jobless claims highlighted additional signs of slower economic growth and the Federal Reserve's stance toward making aggressive monetary policy moves.

The yield 10-year Treasury yield fell by as much as 12 basis points to 2.772%, the lowest since April 27. The yield eventually pared the loss and rose above 2.8%. Yields move inversely to bond prices.

The yield fell after the government said weekly jobless claims rose by 21,000 to 218,000, marking the highest amount of claims since January and pointing to potential weakness in an overall strong jobs market. Stocks, meanwhile, extended a selloff after the Labor Department's report, leaving the S&P 500 closer to tipping into a bear market.

"I would not expect this in June, but a Fed pivot is coming," wrote Renaissance Macro Research in a Thursday post on Twitter. "First, initial jobless claims are rising. We are not alarmed yet, but at a minimum, this rise indicates that the unemployment rate is flattening out. The risk of a labor market becoming more unsustainably hot is falling."

The Federal Reserve last year made a so-called hawkish pivot in signaling to the markets that it will be aggressive in raising interest rates to bring down inflation. But the jobless claims data and other recent reports have also stoked market speculation that the economy is headed for recession or stagflation - conditions that could prompt the Fed to soften its tone about future rate hikes.

On Thursday, data from the Philadelphia Fed showed a considerable slowdown in manufacturing activity in the mid-Atlantic region. The Philly Fed Index dropped by 15 points in May to 2.6, well below the Econoday consensus estimate of 16.1. Last week, consumer sentiment fell to its lowest since 2011, with the University of Michigan's May gauge driving down 9% to 59.1.

Consumer price inflation was burning at an 8.3% rate in April, which was slightly less than the 8.5% rate in March which marked a 41-year high.

"We are starting to see the back of inflation being broken and, with higher frequency data like consumer sentiment and now jobless claims reversing course, we are getting very close to a Fed pivot on rates," Jamie Cox, managing partner at Harris Financial Group, in a note.

The Fed has raised interest rates by 75 basis points since March to a range of 0.75% to 1%, with more rate hikes priced in financial markets.