U.S. Treasury Yield Climbs After Better-Than-Expected GDP Report

Treasury yields rose Thursday after the fourth quarter gross domestic product report was better than expected. This news provides some relief to investors who have been worried about a looming economic recession.

The 10-year Treasury yield increased by 2 basis points to 3.485%. The 2-year Treasury yield rose by 3 basis points to 4.166%.

As yields increase, prices decrease, and vice versa. One basis point is equal to 0.01%.

The Commerce Department reported Thursday that fourth-quarter GDP rose at a 2.9% annualized pace from October to December. This was slightly higher than the 2.8% reading that economists surveyed by Dow Jones had expected.

The U.S. economy cooled slightly in the last quarter of 2022, after a period of rapid growth as the country reopened and consumers were bolstered by stimulus money.

Overall, the data was solid and consistent with the Fed continuing to raise rates by a quarter point at the next 2-3 meetings. Jobless claims data is likely to keep upward pressure on rates throughout the day. Ian Lyngen, BMO's head of U.S. rates, said.

The latest jobless claims data showed a decline last week, indicating that the labor market remains strong despite the Fed's rate hikes. This is further evidence that the economy is continuing to grow and create jobs, despite the headwinds created by the higher interest rates.

As the Federal Reserve continues to raise interest rates in an effort to control inflation, some investors are concerned that this could lead to a recession. GDP is a key indicator of economic health, and some economists believe that two consecutive quarters of negative GDP growth signals a recession.

The Federal Reserve is next meeting on January 31 and February 1. Markets are expecting the central bank to further increase interest rates by 25 or 50 basis points as its battle with persistent inflation continues.

Investors will be closely watching earnings reports from American Airlines and Intel on Thursday for clues about how corporations are feeling about the economy. Future guidance from these companies could give investors an idea of what to expect in the coming months.