*
U.S. Q4 GDP revised lower, inflation measures show uptick
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U.S. jobless claims fall, showing still tight labor market
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U.S. 10-year yields rise to 3-month highs, but last traded
down
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Fed funds futures price in 25-bps hikes in next three
meetings
By Gertrude Chavez-Dreyfuss NEW YORK, Feb 23 (Reuters) -
U.S. Treasury yields slid in choppy trading on Thursday, with investors already factoring in strong economic data that has supported expectations of a few more interest rate hikes by the Federal Reserve this year.
U.S. yields shot higher after data showing a tight labor market with the unexpected decline in jobless claims and hotter-than-forecast inflation figures in the gross domestic product (GDP) report. Benchmark U.S. 10-year yields rose to a fresh three-month peak of 3.978% after the data, before falling. Overall, Treasury yields have slipped since posting gains following the economic numbers.
"We've had a string of economic data that has been consistent with the data that we received this morning. So yields have already re-priced higher pretty extensively given higher inflation and the strong labor market," said Jim Barnes, director of fixed income, at Bryn Mawr Trust in Berwyn, Pennsylvania.
"There is only so much more yields can go up from here.
So in order to get another leg up, we probably need to see data
reflective of February to show that the trend is continuing."
Thursday's reports came in the wake of recent robust data that suggested the U.S. economy may avert a recession after all. Initial claims for state unemployment benefits slid to a seasonally-adjusted 192,000 for the week ended Feb. 18, data showed. Economists polled by Reuters had forecast 200,000 claims. At the same time, U.S. GDP increased at a revised 2.7% annualized rate last quarter, the government said in its second estimate of fourth-quarter GDP. That was revised down from the 2.9% pace reported last month. More importantly, the fourth-quarter personal consumption expenditures (PCE) price index, one of the key inflation measures tracked by the Fed for monetary policy, rose 3.7%, from the first reading of 3.2%, while the core PCE climbed to 4.3%, from the initial estimate of 3.9%. Fed funds futures are priced for 25 basis-point (bp) hikes over the next three meetings, with a peak rate of 5.36% hitting in July. . In afternoon trading, the yield on 10-year Treasury notes was down 4.6 bps at 3.876%.
U.S. 30-year Treasury bond yields fell 5.7
bps
to
3.8 72 %.
A closely-watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes , seen as an indicator of economic growth
expectations, deepened its inversion to 81.6 bps, suggesting
looming recession.
This curve, which has predicted seven of the last eight
recessions, has been inverted since July last year despite signs
of stable growth based on recent data.
"The steep yield curve inversion we're seeing is still
reflective of inflation that stems from a post-pandemic world,"
said Bryn Mawr's Barnes.
"Some of the more traditional ways of looking at economic growth continue to be distorted because of the post-pandemic environment."
The U.S. two-year yield, which typically reflects interest rate expectations, was little changed at 4.697%.
Also on Thursday, the Treasury auction of $35 billion in U.S. seven-year notes was poorly-received.
The note picked up a
high yield
of 4.062%, higher than the expected rate at the bid
deadline, suggesting investors demanded a premium to buy the
note. There were $87.1 billion in bids for a bid-to-cover ratio,
a gauge of demand, of 2.49, lower than last month's 2.69 and the
2.51 average.
February 23 Thursday 3:13PM New York / 2013 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.705 4.8271 -0.001
Six-month bills 4.8975 5.0909 -0.011
Two-year note 99-222/256 4.6953 -0.004
Three-year note 98-222/256 4.4101 -0.020
Five-year note 99-132/256 4.1082 -0.025
Seven-year note 96-200/256 4.0365 -0.035
10-year note 96-224/256 3.8807 -0.042
20-year bond 97-176/256 4.0448 -0.043
30-year bond 95-144/256 3.8766 -0.051
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 33.25 -0.75
spread
U.S. 3-year dollar swap 18.75 -1.00
spread
U.S. 5-year dollar swap 7.25 0.75
spread
U.S. 10-year dollar swap -0.50 -0.75
spread
U.S. 30-year dollar swap -40.00 -0.25
spread
(Reporting by Gertrude Chavez-Dreyfuss; editing by Diane Craft)
