Yields rise after strong Q2 economic data, markets await Q3 data
By Matt Tracy
U.S. Treasury yields rose on Thursday following stronger-than-expected second-quarter economic data that could strengthen the case for a rates pause from the Federal Reserve at its next October meeting.
The benchmark U.S. 10-year Treasury note yield (US10YT=TWEB) was last up 4.6 basis points (bps) at 4.193%. It hit its highest level since September 5 on Monday.
The 30-year bond yield (US30YT=TWEB) was last up 1.7 bps at 4.772%.
The uptick in yields follows a series of economic data reports Thursday morning that surprised to the upside. These included initial jobless claims last week that were lower than analysts' forecasts.
Further data showed that existing home sales declined in August amid affordability issues and high mortgage rates.
GDP data showed the economy grew in the second quarter, driven by an ebb in imports and strong consumer spending.
"It seems like we're reacting more to the GDP upside surprise," said Molly Brooks, U.S. rates strategist at TD Securities, about the uptick in two- and 10-year Treasury yields.
"(But) I think markets are still biased towards seeing a slowdown in data going forward," she cautioned.
Market participants are looking to further data, especially for the third quarter, showing the direction of inflation and the job market for signs of the Fed's rates decision at its October meeting.
Markets are pricing in an 83% chance of a 25 bps cut in October following Powell's Tuesday speech, and 17% odds of a pause. U.S. rate futures have also priced in 44 bps worth of cuts through the end of the year, according to LSEG data.
The two-year (US2YT=RR) yield, which typically reflects interest rate expectations, was last up 5.7 bps from Wednesday's close at 3.655%. It hit a three-week high of 3.6% on Monday.
The Treasury Department will auction $44 billion in seven-year notes (US7YT=RR) on Thursday afternoon. The auction will follow two- and five-year auctions earlier in the week that saw around average demand from primary dealers.
