Treasury Yields Remain Steady Ahead of U.s. GDP Data That Sets the Stage for Inflation Data

On Thursday, Treasury yields experienced a notable surge, propelling the policy-sensitive 2-year rate toward its highest level since November. This uptick came in response to data indicating that core PCE (Personal Consumption Expenditures) inflation exceeded expectations for the first quarter, despite a slowdown in U.S. economic growth to 1.6%.

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Here's a breakdown of the key movements:

• The yield on the 2-year Treasury note (BX:TMUBMUSD02Y) surged by 8.1 basis points to 5.014%, up from 4.933% recorded on Wednesday.
• The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) climbed by 6.8 basis points to 4.72%, compared to 4.652% on Wednesday.
• The yield on the 30-year Treasury note (BX:TMUBMUSD30Y) rose by 4.3 basis points to 4.826%, up from 4.783% the previous day.

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The release of first-quarter GDP data earlier on Thursday revealed that economic growth fell short of the 2.2% median estimate provided by economists surveyed by The Wall Street Journal. Despite this, the report offered little indication that the economy is on the brink of downturn.

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Moreover, the GDP report disclosed that core inflation, excluding food and energy components, surged to a 3.7% annualized rate, based on quarterly data from the personal consumption expenditures price index. This marked an increase from the 2% rate observed in the fourth quarter.

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Additionally, investors turned their attention to the upcoming $44 billion auction of 7-year notes scheduled for later on Thursday.

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Chris Low, chief economist for FHN Financial in New York, commented on the situation, stating, “Yields are sharply higher this morning, despite weaker-than-expected GDP growth. It makes sense, however, given significantly worse than expected quarterly inflation." He further elaborated, “Normally, a 1.6% GDP increase would bolster the case for easing, but not under these circumstances.”

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