U.S. Government Bonds Slip Amid Optimistic Economic News

By Akane Otani Features Dow Jones Newswires

U.S. government-bond prices edged lower Wednesday after a stream of data suggested the economy remains on solid ground.

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The yield on the 10-year U.S. Treasury note settled at 2.145%, compared with 2.134% on Tuesday. Yields rise as bond prices fall.

Bond yields extended gains after data showed U.S. economic growth picked up faster than analysts had initially expected during the second quarter.

Gross domestic product -- a broad measure of goods and services produced across the U.S. -- rose at a seasonally and inflation-adjusted rate of 3.0% from the year-earlier period, the fastest pace of growth since the first quarter of 2015, the Commerce Department said Wednesday.

Economists surveyed by The Wall Street Journal had expected an upward revision of 2.8%. Stronger consumer spending and business investment helped support growth, even as spending by state and local governments declined, the Commerce Department said.

Hiring in the private sector is improving as well. The U.S. private sector added 237,000 jobs in August, data from payroll processor Automatic Data Processing and forecasting firm Moody's Analytics showed, jumping past the 185,000 jobs that economists surveyed by The Wall Street Journal had expected.

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Together, the data showed the U.S. economy on strong footing, weakening demand on Wednesday for bonds, which tend to do well in environments of softer growth. Investors will get another look at the economic picture on Friday, when the Labor Department releases its much-awaited employment report.

Even as several measures of the economy have picked up, however, inflation has remained soft -- something analysts think could limit the selling pressure on government bonds for the time being. Inflation tends to weaken demand for government debt since it erodes the purchasing power of their fixed returns.

"My guess is that most people don't seem to be worried about significant upside risk to inflation anymore," said Chirag Mirani, head of U.S. rates strategy at UBS.

Mr. Mirani noted that U.S. crude prices, which fell into bear-market territory earlier this summer, continued to fall in August -- adding to his view that inflation is likely to pose little threat to the Treasurys market for now. Crude for October delivery fell for a third consecutive session Wednesday, bringing its losses for the month to 8.4%.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

August 30, 2017 15:43 ET (19:43 GMT)