BOND REPORT: Treasury Yields Give Back Ground After 5-day String Of Rises

By Sunny Oh Features Dow Jones Newswires

Core PCE inflation for the first quarter hits Fed target of 2.0%

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Treasury yields erased an early rise to end lower on Friday, ending a five-day run of increases.

Yields, which move in the opposite direction of prices, initially rose after data showed a rise in the Federal Reserve'sinflation measure and weak first-quarter U.S. growth.

The yield on the 10-year Treasury note fell 1.1 basis point to 2.282%, and dropped 11.4 basis points in April, the largest one month yield decline in seven months. Bond prices move in the opposite direction of yields; one basis point is one hundredth of a percentage point.

The yield on the 2-year note rose 0.8 basis points to 1.270%, capping a weekly gain of 8.5 basis points. While the yield on the 30-year bond, or the long bond, fell 1.6 basis point to 2.952%.

The initial rise in yields came after the Commerce Department reported that the personal-consumption expenditures, or PCE, index rose at a 2.4% annual pace in the first quarter, topping the central bank's target of 2% for the first time in several years. Core PCE, which strips out food and energy, however, was little changed at 2%.

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The Commerce Department said the U.S. economy grew at a 0.7% annual pace in the first three months of the year. Economists surveyed by MarketWatch had forecast 0.9% growth.

See: U.S. economy bogs down in first quarter with slowest growth in 3 years ().

Consumer spending posted the smallest gain since 2009, as Americans cut spending on cars, gas, clothes and utilities. But after feeble retail sales in March, economists were not surprised.

"In recent years there is a well-established pattern of GDP growth disappointing in the first quarter and then rallying over the remaining three quarters," said Paul Ashworth, chief U.S. economist for Capital Economics, in a note. "The slowdown in the first quarter this year was principally due to a near-stagnation in consumption."

Market strategists said seasonal weakness could be blamed for the subpar growth. Investors were apprehensive the economy was slowing as the Atlanta Fed GDP tracker had predicted 0.2% growth for the first quarter.

"I get the sense the [initial] market reaction was relief that the GDP reading met the consensus after the Atlanta Fed GDP tracker was lower. [First quarter GDP growth] came in line with market consensus ," said Subadra Rajappa, head of U.S. rates strategy at Société Générale. "Once you see a number on the consensus, you saw the market sold off after that."

The University of Michigan's consumer sentiment indicator edged down from 98.0 in March to 97.0 in April. Despite the decline, consumer confidence remains strong compared with last October's reading of 87.2. While the Chicago Purchasing Managers Index, a measure of Midwest economic activity, budged up to 58.3 in April from 57.7 in March.

(END) Dow Jones Newswires

April 28, 2017 16:46 ET (20:46 GMT)