Strong economic data backs second-quarter GDP boost
Treasury yields rose on Thursday as a spate of solid economic data lifted growth and inflation expectations, which could invigorate second-quarter gross domestic growth figures, strengthen the case for monetary tightening (http://www.marketwatch.com/story/gdp-estimates-for-second-quarter-come-tumbling-down-2017-07-14).
Investors also prepared for a bumper bond offering from AT&T Inc. as money managers sold Treasurys to make way for corporate paper, market participants said.
The yield for the 10-year note jumped close to 3 basis points to 2.312%, from 2.285% on Wednesday. The 30-year bond's yield gained more than 3 basis points to hit 2.928%, versus 2.895% the previous session. While, the 2-year yield was relatively unchanged at 1.359%. Bond prices move in the opposite direction of yields.
Growth expectations were back on top of investors' agendas after a measure of business investment, durable-goods orders, was up 6.5% in June thanks to a rush of fresh orders for airplane manufacturers. Economists polled by MarketWatch had forecast a 5.2% increase. The report partially helped to lift Treasury yields.
(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.
A reading of second-quarter GDP is set to be released on Friday, providing the market with clearest look at the pace of economic growth.
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)
Also, the Labor Department on Thursday said the number of Americans filing for unemployment benefits rose to 244,000 (http://www.marketwatch.com/story/us-jobless-claims-climb-10000-to-244000-2017-07-27)for the week ended July 22, from 234,000, but still hovered around 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 were confident that spending from shoppers would rebound. Stronger growth can translate into higher inflation, which has a bearish influence on Treasurys.
The yield move higher gained impetus as AT&T came on to the corporate bond market on Thursday. Investors have touted a $22.5 billion figure, but the final sum has yet to be completed. The amount would put it on track as the largest sale of corporate credit this year, after Microsoft issued $17 billion of its paper in January.
"This seven-part offering in this mega deal is certainly weighing on the market," said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, referring to how the sale will come in seven separate tranches.
Large offerings for highly-rated corporate bonds can prompt money managers to cut their holdings of U.S. Treasurys to make space for the new investments. But with so much cash on the sidelines, mutual funds may not need to free up funds to purchase the securities, said analysts.
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 (http://in.reuters.com/article/ecb-policy-nowotny-idINKBN1AB2JD). He also said economic conditions had improved, with monetary policy makers 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 16:38 ET (20:38 GMT)