Treasury yields fell further Thursday morning after an unexpectedly strong reading of fourth-quarter U.S. economic growth gave support to the view that a recession can be avoided as inflation eases.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
fell 3.6 basis points to 4.340% from 4.376% on Wednesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
dipped 4.6 basis point to 4.132% from 4.178% on Wednesday. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
eased 4.3 basis points to 4.370% from 4.413% on Wednesday.
What’s driving markets
In data released on Thursday, fourth-quarter U.S. GDP grew at a 3.3% annual rate — above economists’ estimates, but below the 4.9% rate seen in the third quarter. Growth at the end of last year was led by consumer spending, among other things.
The report provides the latest evidence of a healthy economy that’s manage to avoid a downturn despite interest rates remaining between 5.25%-5.5%.
Markets are pricing in a 97.4% probability that the Federal Reserve will leave interest rates unchanged at its policy meeting next Wednesday, according to the CME FedWatch Tool. The chance of no action again by March is now seen at 52.6%. However, fed funds futures traders continue to mostly expect five or six quarter-point rate cuts by December.
Other data on Thursday showed that U.S. initial jobless claims ticked up by 25,000 to 214,000 for the week that ended Jan. 20, durable goods order were flat in December, and the U.S. trade deficit in goods narrowed to $88.5 billion last month.
Treasury will auction $41 billion of 7-year notes at 1 p.m. Eastern time.
On Friday, the Fed’s favored inflation gauge, the personal consumption expenditure price index, will be released for December. Economists expect the core PCE index, which excludes food and energy, to have increased by 3% year-over-year, easing from 3.2% the prior month.
What analysts are saying
Those hunting for clues that the Federal Reserve is ready to cut interest rates “will be sorely disappointed,” said analyst Sophie Lund-Yates of Hargreaves Lansdown.
“The U.S. economy has shown remarkable resilience in the face of higher interest rates and soaring inflation, with consumer spending once again being a driver of GDP growth,” Lund-Yates wrote in an email. “This comes despite a stark burn-rate on excess savings and sharp jumps in the amount people are paying on personal loans, rather than mortgages. The U.S. public is absorbing far more shocks than expected, but that’s not to say the storm will blow over without consequence.”
