The yield of the 10-year U.S. Treasury Note tumbled 5.02% to an intraday low of 1.986% on Friday, before bouncing back to close at 2.037%, after the Commerce Department said retail sales slipped 0.1% last month following a rise of 0.4% in November. For all of 2015, retail sales rose 2.1%, the weakest reading since 2009, after climbing 3.9% in 2014, according to Reuters. The U.S. Federal Reserve said on Friday that industrial production dropped 0.4% in December, for the third straight month, after a downwardly revised 0.9% decline in November. Economists polled by Reuters had forecast industrial production for last month to decrease 0.2%.

Based on the weak December retail sales and industrial output, the Federal Reserve Bank of Atlanta trimmed its U.S. real GDP growth forecast for the fourth-quarter of 2015 to 0.6%, from a forecast of 1.8% right after the Fed rate hike. BNP Paribas turned sour on the U.S. economy, as the bank sees no U.S. GDP growth in the fourth-quarter. The strong dollar has reduced overseas demand for U.S. manufactured products. Some analysts, including Peter Boockvar, chief market analyst at The Lindsey Group, told CNBC last month that "We're in manufacturing recession.”

The weak U.S. economic news also sent the yield of the U.S. 2-Year Treasury Note nosediving 5.56% to close at 0.85% on Friday, driving the yield spread between the 10-year and 2-year Treasury Notes down to 1.18 percentage points, the level not seen since early 2008. Falling spreads may indicate worsening economic conditions in the future, resulting in a flattening yield curve. A very low or negative spread could signal an upcoming recession. Since 1960, each time that the yield spread went negative, a recession followed approximately 12-months later.

The yield spread between the 10-year and 2-year Treasury Notes has been falling, since July 10 at 1.77 percentage points, when Federal Reserve Chair Janet Yellen said in a speech that she expected the Fed to raise interest rates at some point last year, but pointed strongly to her concerns that U.S. labor markets remained weak and that more workers could have been encouraged back into the job market with stronger growth.

The U.S. Labor Department said on Friday that the producer-price index (PPI), which measures the prices companies receive for goods and services, fell 0.2% in December, while the core prices, excluding volatile food and energy, rose 0.1%. Both figures were in-line with economists' forecasts. Analysts were expecting the PPI to remain weak, as crude oil prices are on the decline and the U.S. dollar stays strong. 

The Fed's so-called "Dot Plot" is starting to look shaky, as the Federal Reserve Bank of San Francisco's Williams said on Friday that four rate hikes in 2016 are "not baked in the cake". St. Louis Fed President James Bullard turned less hawkish and said in his prepared remarks to the Economic Club of Memphis on Thursday that the latest plunge in crude prices has implications for monetary policy in the United States, according to CNBC.

As of January 12, there are 605,068 short positions of 10-year U.S. Treasury Notes, traded on the Chicago Board of Trade (CBOE:TNX), by leveraged funds. This is compared to about 361,360 long positions, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC). Despite the turmoil in the U.S. and global financial markets, hedge funds have been adding to their short positions, resulting in an increase in the net short positions by about 3,038 contracts last week, where TNX contracts are traded in units of $100,000 face value.

From our technical viewpoint, the yield of the U.S. 10-year Treasury Note has been moving in a symmetrical triangle chart pattern since 2012 and is about to break down the key support at 2.04, or the 61.8% Fibonacci retracement level. In the event of a symmetrical triangle breakdown, the yield of 10-year Treasury Note could fall to the 1.6%-1.7% levels, and the yield spread between the 10-year and 2-year Treasury Notes to below 1 percentage point, signaling that a troubled U.S. economy is ahead. 

The probability of four more hikes in the short-term rate by the Fed this year will likely put downward pressure on the yield spread. Nonetheless, there has not been a recession when the spread between the 10-year and 2-year Treasury Notes is positive.