US Treasury yields rise as GDP and job data signal economic stability

US yields climb: US Treasury yields increased on Thursday, reflecting confidence that the economy is stable enough for the Federal Reserve to adopt a more cautious approach to interest rate cuts this year.

Recent data from the Commerce Department revealed that the GDP grew at an annualised rate of 3.0 per cent last quarter, an improvement from the previously reported 2.8 per cent. Additionally, consumer spending, a major component of the economy, was revised up to a 2.9 per cent growth rate, surpassing the earlier estimate of 2.3 per cent.

Jobless claims drop

Another report showed that initial jobless claims fell to 231,000 last week, slightly below the 232,000 forecast by economists surveyed by Reuters. This drop aligns with a cooling labour market.

"The better-than-expected GDP revisions, driven by stronger consumer spending, have led to a slight reduction in market expectations for 2024 rate cuts," said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York. "Market focus is shifting more towards employment and consumer health rather than inflation."

The yield on the benchmark 10-year US Treasury note rose by 2 basis points to 3.862 per cent, marking its fourth consecutive daily increase and its largest one-day gain in a week.

The market is now fully anticipating a 25 basis point rate cut at the Fed's September meeting, but expectations for a 50 basis point cut have dropped to 34.5 per cent from 38 per cent previously, according to CME's FedWatch Tool.

The yield curve, which measures the difference between two-year and 10-year Treasury yields and serves as an economic expectation indicator, was at a negative 2.9 basis points, narrowing from a negative 1.4 basis points, its highest since August 8.

The two-year Treasury yield climbed 2.9 basis points to 3.896 per cent, while the 30-year bond yield rose 1.5 basis points to 4.146 per cent.

Fed considers rate cuts

Federal Reserve Bank of Atlanta President Raphael Bostic suggested that with inflation easing and the unemployment rate higher than expected, it might be time to consider rate cuts. However, he wants to ensure the decision is well-founded before proceeding. Bostic is expected to speak later on Thursday.

Yields briefly spiked following a weak auction of $44 billion in seven-year notes, the final auction of the week, which saw below-average demand. The yield on these notes was last up 2.6 basis points to 3.763 per cent.

Friday’s data on personal consumption expenditures (PCE) for July will provide further insight into whether inflation continues to ease.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.056 per cent, up from 2.046 per cent on August 28. The 10-year TIPS breakeven rate stood at 2.159 per cent, suggesting that the market expects average inflation of about 2.2 per cent over the next decade.

(With Reuters Inputs)