BOND REPORT: Treasury Yields Tick Higher Ahead Of Key Report On U.S. Fourth-quarter Growth

By Mark DeCambre, MarketWatch Features Dow Jones Newswires

Treasury yields on Friday rose slightly, as investors sold some government paper, ahead of a reading of U.S. gross domestic product for the fourth quarter that could signal that economic expansion in the U.S. is revving higher.

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A stronger pace of growth may delivery a further jolt to appetite for assets perceived as risky, like stocks, and may lead the Federal Reserve to raise key interest rates faster than anticipated, a scenario that could be bearish for bonds.

A speech from President Donald Trump in Davos, Switzerland at the World Economic Forum that is likely to touch on international trade and the health of the U.S. economy, also will be in focus.

How are Treasurys performing?

The yield on the benchmark 10-year Treasury note rose 1.7 basis points to 2.645%. The 2-year note yield added 2 basis points to 2.108%, while the 30-year bond yield climbed 0.7 basis point to 2.898, with yields picking up after the biggest one-day declines since Dec. 27 in Thursday trade.

What's driving the markets?

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A first reading of gross-domestic-product data for the fourth quarter of 2017 are due at 8:30 a.m. Eastern, and economists surveyed by MarketWatch expect the report to show annualized growth of 3% (http://www.marketwatch.com/story/three-in-a-row-us-gdp-could-hit-3-again-and-match-best-streak-since-2005-2018-01-25) (http://www.marketwatch.com/story/three-in-a-row-us-gdp-could-hit-3-again-and-match-best-streak-since-2005-2018-01-25).

A strong reading would add to signs that a global economic upswing, which has lifted the S&P 500 , the Dow Jones Industrial Average and the Nasdaq Composite to repeated records in January. Corporate tax cuts and a broader increase to corporate spending spurred by pro-business policies, also has factored into growth expectations.

Increases to U.S. output could push the Fed to act more aggressively to tamp down a market and economy that by some measures is at lofty valuations.

Yesterday, the market also digested the European Central Bank decision to keep rates unchanged while acknowledging that the eurozone economy is gathering steam as a signal that the central bank may be gearing up to adopt a more hawkish posture.

Meanwhile, a downtrodden U.S. dollar , which lost some upward traction after President Trump said he endorsed a strong dollar, has weighed on government paper as well. A weaker currency can make Treasurys less attractive to foreign buyers.

What are strategists saying?

"With the spike in [10-year German] bund yields during the ECB press conference, reaching a peak at 0.64% but closing at 0.612%, the question arises as to whether momentum towards higher yields will gain more traction. While we expect to see yields moving higher across major bond markets over the course of the next few months, we doubt the selloff will continue at its current pace," wrote analysts at UniCredit in a Friday research note.

What are other assets doing?

The yield on the 10-year German bond , known as the bund, was at 0.624%, compared with 0.589%, according to FactSet data.

(END) Dow Jones Newswires

January 26, 2018 08:10 ET (13:10 GMT)