Treasury yields pop higher after economic data underlines resilient U.S. growth

U.S. Treasury yields rose Wednesday in a holiday-truncated week as a round of data highlighted a rebound in investment spending and suggested third-quarter economic growth may not have slowed as much as anticipated.

Due to the U.S. Thanksgiving Day holiday on Nov. 28, the Securities Industry and Financial Markets Association recommends for the bond-market to shutter on Thursday, and an early close on Friday.

The 10-year Treasury note yieldTMUBMUSD10Y, +1.03%  was up 0.5 basis point to 1.745%, while the 2-year note rateTMUBMUSD02Y, +1.77%  was virtually unchanged at 1.588%. The 30-year bond yieldTMUBMUSD30Y, +0.48%  edged down 0.4 basis points to 2.182%.

Investors saw fresh reasons for optimism about the U.S. economy after a round of data showed growth and the labor market remained resilient. Expectations for a more moderate economic slowdown could help weigh on prices for government paper, which have surged this year as bond-traders anticipated a sharp slowdown to prompt further interest rate cuts from the Federal Reserve.

A revised estimate of third-quarter GDP showed the U.S. economy expanded at a 2.1% annual pace versus a previous estimate of 1.9%.

Separately, the number of people who applied for first-time unemployment benefits fell sharply in the week before Thanksgiving, putting claims back near historic lows. Initial claims declined 15,000 to 213,000 in the week ended Nov. 23, the Labor Department said, though many economists caution against reading too much into any one week’s worth of claims data around this time of year.

Also, orders for durable goods rose 0.6% in October, the government said, defying forecasts for a 1.1% drop, though most of the gain was tied to defense-related goods such as jet fighters and ships.

U.S. consumer spending rose in October for the eighth month in a row, a potentially good sign for the holiday shopping season that gets underway after Thanksgiving with Black Friday specials.

A gauge of inflation favored by the Federal Reserve dipped to a 1.6% yearly gain in October, from a previous 1.7% run rate, the government said. Personal incomes were flat, and consumer spending rose 0.3% while the savings rate ticked down modestly.

However, the bond-market selloff helped to cheapen prices for government paper and attract demand for the last of three coupon-bearing debt auctions this week. The Treasury Department sold $32 billion of 7-year notes.

International trade policy also occupied the attention of bond investors who remain fatigued on the conflicting headlines on the progress of trade talks in the last few weeks. President Donald Trump repeated on Tuesday night that the U.S. was very close to reaching a phase one trade deal.

Yet worries abound that Trump could scupper negotiations by signing off on legislation supporting Hong Kong protesters, which Beijing has insisted would be tantamount to interference in its domestic affairs.

“The economic data continues to largely support growth, at least in the near-term,” said Kevin Giddis, chief fixed income strategist at Raymond James. The stronger GDP and durable goods numbers “caused the longs to get a bit nervous,” he said.

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