Treasury yields slip regardless of unexpectedly sturdy fourth-quarter GDP report

What’s taking place

• The yield on the 2-year Treasury
  BX:TMUBMUSD02Y
  fell 3.6 foundation factors to 4.340% from 4.376% on Wednesday.
• The yield on the 10-year Treasury
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  dipped 4.6 foundation level to 4.132% from 4.178% on Wednesday.
• The yield on the 30-year Treasury
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  eased 4.3 foundation factors to 4.370% from 4.413% on Wednesday.

What’s driving markets

In knowledge launched on Thursday, fourth-quarter U.S. GDP grew at a 3.3% annual fee — above economists’ estimates, however under the 4.9% fee seen within the third quarter. Growth on the finish of final yr was led by shopper spending, amongst different issues.

The report supplies the newest proof of a wholesome financial system that’s handle to keep away from a downturn regardless of rates of interest remaining between 5.25%-5.5%.

Markets are pricing in a 97.4% chance that the Federal Reserve will go away rates of interest unchanged at its coverage assembly subsequent Wednesday, in response to the CME FedWatch Tool. The likelihood of no motion once more by March is now seen at 52.6%. However, fed funds futures merchants proceed to principally anticipate 5 or 6 quarter-point fee cuts by December.

Other knowledge on Thursday confirmed that U.S. preliminary jobless claims ticked up by 25,000 to 214,000 for the week that ended Jan. 20, sturdy items order have been flat in December, and the U.S. commerce deficit in items narrowed to $88.5 billion final month.

Treasury will public sale $41 billion of 7-year notes at 1 p.m. Eastern time.

On Friday, the Fed’s favored inflation gauge, the non-public consumption expenditure worth index, can be launched for December. Economists anticipate the core PCE index, which excludes meals and power, to have elevated by 3% year-over-year, easing from 3.2% the prior month.

What analysts are saying

Those looking for clues that the Federal Reserve is able to lower rates of interest “will be sorely disappointed,” stated 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 electronic mail. “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.”