Bonds News

TREASURIES-U.S. bond yields slip as Q4 GDP disappoints

* Headline U.S. Q4 GDP falls short, details more encouraging
    * Uncertainty about Trump's policies stems yield decline
    * Fed seen leaving interest rates unchanged next week

 (Updates market action, adds investment strategists' quotes)
    By Richard Leong
    NEW YORK, Jan 27 (Reuters) - U.S. Treasury yields fell on
Friday as data showing a sharper-than-forecast deceleration in
economic growth in the fourth quarter spurred buying of U.S.
government debt ahead of the Federal Reserve's first policy
meeting of 2017.
    Bond purchases were tempered by relatively solid readings on
consumer spending and business investments, supporting the view
the economic expansion remained on track.
    "The economy has less momentum that many perceived," said
Robert Tipp, chief investment strategist at PGIM Fixed Income in
Newark, New Jersey. 
    Gross domestic product grew at a 1.9-percent annualized pace
in the final three months of 2016, compared with a 3.5-percent
rate in the third quarter. Analysts polled by Reuters had
forecast a 2.2 percent GDP growth pace. 
    Trade subtracted 1.70 percentage points from GDP growth in
the last quarter after adding 0.85 percentage point in the third
    "The headline figure was softer-than-expected, but it's
mostly due to weaker trade. The underlying figures were
better-than-expected," said Kathy Jones, chief fixed income
strategist at the Schwab Center for Financial Research.
    Data on durable goods orders and consumer sentiment helped
dispel some disappointment from the latest GDP report.
    Benchmark 10-year Treasury yield was down 1
basis point at 2.495 percent, retreating further from a
four-week high reached on Thursday. For the week, the 10-year
yield was on track to increase 3 basis points.
    The decline in yields was limited by uncertainty about the
effect from U.S. President Donald Trump's economic policies.
Investors are assessing the impact on the federal deficit and
inflation from his moves in the first week of his presidency
aimed to spur domestic jobs and business investments and to
restrict trade and immigration.
    "There are a lot of worries about fixed income. Are we going
to see policies that will raise the deficit and inflation?"
Schwab's Jones said.
    Moreover, Wall Street's advance to record highs with the Dow
breaking above 20,000 this week also tempered demand for
lower-yielding Treasuries, analysts said. 
    As U.S. stock prices jumped on proposed tax cuts,
infrastructure spending and looser regulations from the Trump
administration and a Republican-controlled Congress, Fed
policy-makers have expressed a wait-and-see attitude on a
possible response until they see more details on these moves.
    The Federal Open Market Committee, the Fed's policy-setting
group, is widely expected to leave rates unchanged in a target
range of 0.50-0.75 percent at its meeting next
Tuesday and Wednesday after a quarter-point hike in December.  
  January 27 Friday 12:31PM New York / 1731 GMT
 US T BONDS MAR7               150-1/32     0-8/32    
 10YR TNotes MAR7              124-12/256   0-20/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.505        0.5126    0.008
 Six-month bills               0.62         0.6305    0.016
 Two-year note                 99-206/256   1.2241    0.000
 Three-year note               99-176/256   1.4833    -0.003
 Five-year note                99-156/256   1.9574    -0.004
 Seven-year note               99-174/256   2.2998    -0.011
 10-year note                  95-176/256   2.4991    -0.009
 30-year bond                  96-12/256    3.0785    -0.011
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        29.75         1.00    
 U.S. 3-year dollar swap        24.75         1.50    
 U.S. 5-year dollar swap         6.75         0.50    
 U.S. 10-year dollar swap       -9.25         0.00    
 U.S. 30-year dollar swap      -40.50         0.50    

 (Reporting by Richard Leong; Editing by Nick Zieminski and
Grant McCool)