BOND REPORT: Treasurys Struggle For Direction After Stronger-than-expected GDP Numbers

By Mark DeCambre, MarketWatch Features Dow Jones Newswires

3% third-quarter growth exceeds expectations

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U.S. Treasury yields moved between gains and losses after data showed stronger-than-expected third-quarter U.S. growth.

What are yields doing?

The yield on the 10-year Treasury note was at 2.453%, compared with 2.452% late Thursday in New York. The 2-year Treasury yield stood at 1.619%, versus 1.618% in the previous session, while the 30-year Treasury bond yield traded at 2.957%, compared with 2.959% late Thursday.

Bond prices move inversely to yields.

What's driving the market?

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The first read of third-quarter gross domestic product showed annualized growth of 3%, outpacing the median forecast of 2.4% produced by a MarketWatch survey of analysts. Much of this rise was driven by business investment and growth in inventories, which contributed 0.7% to the number alone. That was a source of concern to some as inventories can either suggest heightened optimism among businesses or that firms were having difficulty off-loading their merchandise.

It represents the last major piece of economic data before the Federal Reserve's policy-setting meeting next week. Investors anticipate the data will give the central bank assurance that the world's largest economy could withstand one more increase to rates at its December meeting. Traders at the fed futures market priced in a 96.7% chance of a rate increase, CME Group data shows (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/).

See: GDP grows at stronger-than-forecast 3% rate in third quarter (http://www.marketwatch.com/story/economy-grows-at-3-rate-in-third-quarter-despite-negative-impact-from-hurricanes-2017-10-27)

The GDP figures will be followed by a survey on consumer sentiment for October at 10 a.m. Eastern.

Investors continue to weigh the prospect of a replacement for Fed Chairwoman Janet Yellen, whose term ends in February and who appears to be out of the running for the top spot. Front-runners are said to be Stanford economist John Taylor, who is seen as likely to take a hawkish approach and Fed Gov. Jerome Powell, who is viewed as similar to Yellen.

What are strategist saying?

"With the economy growing much faster than potential and the output gap already closed, the Fed has little reason not to raise rates in December," said Sal Guatieri, senior economist for BMO Capital Markets, referring to the absence of slack in the U.S. economy.

"Some of the recent moves in yields have been driven by expectations of a hawkish Fed chair as opposed to optimism around tax reform," wrote rates analysts Ralf Preusser and Shyam Rajan of Bank of America Merrill Lynch in a Friday note.

Which other assets are moving?

Global stocks rose, with the S&P 500 index and the Nasdaq Composite Index rising on the back of a solid round of quarterly earnings from some of the U.S.'s biggest technology companies (http://www.marketwatch.com/story/amazon-google-microsoft-and-intel-find-billions-more-in-profit-2017-10-26).

(END) Dow Jones Newswires

October 27, 2017 09:44 ET (13:44 GMT)