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Treasury Yields Dip as Traders Eye U.S Data Dumps, Including Gdp and Jobless Claims

January 25, 2024
minute read

Thursday morning witnessed a further decline in Treasury yields as an unexpectedly robust fourth-quarter U.S. economic growth reading fueled the belief that the economy could avoid a recession amid easing inflation.

Here's a breakdown of the yield movements:

  • The yield on the 2-year Treasury (BX:TMUBMUSD02Y) dropped by 3.6 basis points to 4.340%, down from 4.376% on Wednesday.
  • The yield on the 10-year Treasury (BX:TMUBMUSD10Y) dipped 4.6 basis points to 4.132%, compared to 4.178% on Wednesday.
  • The yield on the 30-year Treasury (BX:TMUBMUSD30Y) eased 4.3 basis points to 4.370%, down from 4.413% on Wednesday.

The catalyst for these moves was the release of data indicating that the U.S. GDP grew at an annual rate of 3.3% in the fourth quarter. Although this exceeded economists' estimates, it fell short of the 4.9% rate observed in the third quarter. Notably, consumer spending played a pivotal role in driving growth at the close of the previous year.

This report adds to the mounting evidence of a robust economy that has successfully navigated potential downturns, even with interest rates remaining in the 5.25%-5.5% range. Market sentiments are currently reflecting a 97.4% probability that the Federal Reserve will maintain unchanged interest rates in its upcoming policy meeting next Wednesday, according to the CME FedWatch Tool. The likelihood of no action by March stands at 52.6%. However, futures traders in fed funds continue to anticipate five or six quarter-point rate cuts by December.

In addition to the GDP data, other economic indicators from Thursday included a 25,000 increase in U.S. initial jobless claims to 214,000 for the week ending Jan. 20, flat durable goods orders in December, and a narrowed U.S. trade deficit in goods to $88.5 billion last month.

Further influencing the market, the Treasury is set to auction $41 billion of 7-year notes at 1 p.m. Eastern time.

Looking ahead, Friday will see the release of the Fed's favored inflation gauge, the personal consumption expenditure price index for December. Economists are anticipating a year-over-year increase of 3% in the core PCE index, excluding food and energy, a slight easing from the 3.2% recorded in the prior month.

Analyst Sophie Lund-Yates of Hargreaves Lansdown noted that those hoping for indications that the Federal Reserve is prepared to cut interest rates would be disappointed. She highlighted the remarkable resilience of the U.S. economy despite higher interest rates and increasing inflation. Consumer spending, once again, emerged as a driving force behind GDP growth. Lund-Yates acknowledged the unexpected capacity of the U.S. public to absorb shocks, cautioning that while the economy has weathered challenges well so far, consequences may still arise.

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Cathy Hills
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