(Adds details, prices, quotes)
By Davide Barbuscia
NEW YORK, Jan 26 (Reuters) - U.S. Treasury yields rose
on Thursday after economic data showed resilience in the U.S.
economy, potentially strengthening the case for the Federal
Reserve to maintain its hawkish posture in coming months as it
seeks to cool inflation.
GDP increased at a 2.9% annualized rate last quarter,
the Commerce Department said in its advance fourth-quarter GDP
growth estimate on Thursday. The economy grew at a 3.2% pace in
the third quarter. Economists polled by Reuters had forecast GDP
would rise at a 2.6% rate.
A separate report from the Labor Department on Thursday
showed the labor market remained strong, with initial claims for
state unemployment benefits dropping 6,000 to a seasonally
adjusted 186,000 for the week ended Jan. 21, lower than the
192,000 reported for the previous week.
Benchmark U.S. Treasury 10-year yields rose more
than two basis points after the data, although they pared gains
afterwards and were last seen at 3.478%, slightly higher than on
Wednesday.
Two-year note yields, which tend to more closely
reflect monetary policy expectations, were last seen at 4.164%,
nearly three basis points higher from Wednesday.
Before the data was released, yields were already up on the
back of euro zone bond yields, which rose on Thursday after
recent hawkish comments from European Central Bank officials.
"This morning we started to see some data coming in a
bit above expectations, which is a good sign for growth, and
that's going to help decrease the downside move in Treasury
yields that had been developing in the last couple of weeks,"
said Matthew Miskin, co-chief investment strategist at John
Hancock Investment Management.
The U.S. central bank raised its benchmark overnight
rate by 4.25 percentage points last year to fight decades-high
inflation, but the rapid tightening of monetary policy - the
fastest since the 1980s - has led investors to weigh inflation
concerns against recessionary fears, with markets gyrating
between the two.
After a series of supersized rate hikes, the Fed is now
largely expected to deliver a smaller 25-basis-point hike next
week after indications of a slowdown in inflation.
Signs of resilience in the economy could be seen as
supporting a so-called "soft landing" scenario, one in which the
Fed manages to tame inflation without causing a recession, but
investors and analysts still point to the risk of
over-tightening due to the delayed effects of monetary policy.
"We still expect the lagged impact of the surge in
interest rates to push the economy into a mild recession in the
first half of this year," Andrew Hunter, senior U.S. economist
at Capital Economics, said in a note.
Meanwhile, strong labor market data indicated an
imminent dovish change of course by the Fed remained unlikely,
said Alexandra Wilson-Elizondo, head of multi-asset retail
investing at Goldman Sachs Asset Management.
"It is difficult to see unemployment rising to the
required rate to moderate wage inflation at these levels of
growth. We believe above potential growth, in combination with
the low level of jobless claims, should challenge the view of a
policy pivot in the near term," she said.
January 26 Thursday 10:13AM New York / 1513 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.5575 4.6741 -0.001
Six-month bills 4.6525 4.8301 0.005
Two-year note 99-237/256 4.1641 0.027
Three-year note 100 3.8746 0.034
Five-year note 99-166/256 3.5774 0.033
Seven-year note 102-14/256 3.5375 0.028
10-year note 105-84/256 3.4781 0.016
20-year bond 103-128/256 3.7477 0.009
30-year bond 106-228/256 3.6199 -0.004
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 28.75 -0.50
spread
U.S. 3-year dollar swap 14.00 0.00
spread
U.S. 5-year dollar swap 6.50 2.00
spread
U.S. 10-year dollar swap -2.75 0.50
spread
U.S. 30-year dollar swap -38.50 0.75
spread (Reporting by Davide Barbuscia; Editing by Chizu Nomiyama and
Paul Simao)
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