TREASURIES-Prices up on surprisingly hefty U.S. GDP cut

Wed Jun 25, 2014 3:00pm EDT

Related Topics

* GDP drop biggest in five years
    * Data raise questions about U.S. growth
    * Long bonds post biggest price gains

 (Adds comments, late prices and Treasury auction results)
    By Michael Connor
    NEW YORK, June 25 (Reuters) - U.S. Treasuries prices rose on
Wednesday after government data showed the U.S. economy took a
much worse bruising in early 2014 than previously calculated.
    Despite more recent economic reports illustrating solid
growth, yields on 30-year Treasuries fell as low as
3.358 percent, a level last touched a week ago. The bonds last
traded to yield 3.377 percent, compared to Tuesday's closing
3.403 percent.
    Thirty-year prices, which were already up on buying by
investors rattled by fighting in Iraq, were ahead 17/32.
    Benchmark 10-year notes were up 8/32 to yield
2.557 percent, versus 2.586 percent late on Tuesday. The yield
touched a low of 2.529 percent shortly after the U.S. revision
of gross domestic product during January, February and March.
    "The GDP numbers were worse than expected, and that's in
boldface and capital letters," said strategist Lou Brien at DRW
Trading in Chicago.
    America's GDP fell at a 2.9 percent annual rate, the
economy's worst performance in five years, instead of the 1.0
percent drop reported last month, according to the U.S. Commerce
Department. 
    "This means the Fed the next time it forecasts will have to
revise downward its 2014 estimates," Brien said. "It just makes
them look silly."
    Brien said softness in consumer spending, which accounts for
more than two-thirds of U.S. economic activity, was especially
worrisome. It increased at a 1.0 percent rate but had been
previously reported to have advanced at a 3.1 percent pace.
    Economists estimate severe weather could have slashed as
much as 1.5 percentage points from GDP growth in the first
quarter. The government, however, gave no details on the impact
of the weather.
     Russell Price, senior economist at Ameriprise Financial
Services Inc in Troy, Michigan, said the revised GDP numbers
were out of line with more recent data for manufacturing,
housing, construction, home sales and employment.
    "Everything else has been coming in quite encouragingly,"
Price said. "It was an all-in quarter. We often use that term
for corporations, when they're going to have a bad quarter and
they throw it all in. This time it was economy, and it will
likely boost expectations for the second quarter."
    The government also reported on Wednesday that orders for
long-lasting U.S. manufactured goods unexpectedly fell in May,
another counter to hopes a strong rebound in growth is under
way. 
    Separately, the U.S. Treasury auctioned $35 billion of
five-year notes, which came with a high bid of 1.670 percent.
That was less than 1 basis point lower than the maturity's
when-issued level just before the auction, according to Reuters
data. 

 (Additional Reporting by Herb Lash in New York; Editing by
James Dalgleish and Meredith Mazzilli)
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