Strong economic data backs second-quarter GDP boost
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Treasury yields recovered from the previous session's slide on Thursday as a spate of solid economic data lifted growth and inflation expectations, which could invigorate second-quarter GDP figures and strengthen the case for monetary tightening (http://www.marketwatch.com/story/gdp-estimates-for-second-quarter-come-tumbling-down-2017-07-14).
Investors also grappled with the fallout from the Fed meeting, with many still wondering whether it was dovish enough to push back the timing of the next rate hike.
The yield for the 10-year note recovered to 2.312%, from 2.285%. The 30-year bond's yield gained 3 basis points to hit 2.929%, from 2.89% from Wednesday, while the 2-year yield rose to 1.363%, versus 1.355% from the previous session. Bond prices move in the opposite direction of yields.
Growth expectations was back on top of investors' agendas after a searing durable goods report. A measure of business investment, durable orders was up 6.5% in June thanks to a rush of fresh orders for airplane manufacturers. Economists polled by MarketWatch had forecasted a 5.2% increase. Boeing shares skyrocketed to notch record highs on Wednesday after scoring new purchase contracts, beating expectations for second-quarter earnings (http://www.marketwatch.com/story/boeing-shares-soar-to-record-after-close-to-perfect-earnings-report-2017-07-26).
(http://www.marketwatch.com/story/boeing-shares-soar-to-record-after-close-to-perfect-earnings-report-2017-07-26)"The underlying details were also fairly encouraging and suggest that, after surging in the first quarter, business equipment investment posted a decent gain in the second quarter," said Andrew Hunter, U.S. economist for Capital Economics, in a note to clients.
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See: Boeing bonanza: Durable-goods orders soar 6.5% in June (http://www.marketwatch.com/story/boeing-bonanza-durable-goods-orders-soar-65-in-june-2017-07-27)
Jobless claims rose to 244,000 (http://www.marketwatch.com/story/us-jobless-claims-climb-10000-to-244000-2017-07-27)for the week ending July 22, from 234,000, but still lingered at multiyear lows. Inventories of retail and wholesale goods (http://www.marketwatch.com/story/inventories-surge-in-june-as-trade-deficit-narrows-2017-07-27)also surged in June by 0.6%, offering a jolt to second-quarter GDP and suggested companies had confidence that spending from shoppers would rebound. Stronger growth can translate into higher inflation, which has a bearish effect on Treasurys.
After the Federal Reserve released its policy statement, a spree of bond buying drove Treasury yields lower on Wednesday as investors speculated the Fed's language contained a dovish skew. Market participants focused on a change in wording from inflation was running "somewhat below 2%" to running "below 2% (http://www.marketwatch.com/story/fed-to-wind-down-bond-holdings-relatively-soon-2017-07-26). This could hint that further rate hikes this year are off the table as it shows the Fed may have growing doubts over the U.S. economy's ability to meet the central bank's long-run inflation target.
But some analysts argued that the sharp market swings in the wake of the statement's release was much ado about nothing. Most of the changes made to the update were within expectations, and the hint towards reducing the balance sheet "relatively soon" had already been communicated through Fed Chairwoman Janet Yellen's testimony few weeks ago and from speeches made by senior Fed officials, said Brian Nick, chief investment strategist for TIAA Investments.
It's why the recovery in Treasury yields on Thursday has been attributed to investors taking a more sober and balanced view on the Fed policy statement after the previous session's frenzied buying.
Elsewhere, European sovereign bonds received a lift after European Central Bank Gov. Ewald Nowotny said on Wednesday it might be prudent to "gradually take our foot off the gas," a hint that quantitative easing might have run its course, according to a Reuters report. He (http://in.reuters.com/article/ecb-policy-nowotny-idINKBN1AB2JD)also said economic conditions had improved, with monetary policymakers no longer having to contend with the bugaboo of deflation.
The German 10-year benchmark bond was relatively unchanged at 0.536%, while the 10-year French government bond added 2 basis points to 0.800%.
(END) Dow Jones Newswires
July 27, 2017 11:15 ET (15:15 GMT)