Treasurys Weaken Amid Strong Economic Data

FeaturesDow Jones Newswires

U.S. government bonds weakened Friday as fresh data showed that the domestic economy ended last year on a strong note, fueled by American consumers' healthy spending.

The yield on the 10-year Treasury note rose to 2.654%, according to Tradeweb, from 2.628% on Thursday. Yields rise as bond prices fall.

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Treasury yields have risen this month but pared their climb yesterday after President Donald Trump endorsed a stronger dollar, sending the greenback higher and yields lower.

New data released on Friday showed that the domestic economy just finished its best year since 2014. Gross domestic product, a measure of all goods and services produced in the U.S., adjusted for inflation, slowed but rose at an annual rate of 2.6% from October through December, the Commerce Department said Friday, less than the 2.9% reading economists surveyed by The Wall Street Journal expected.

The price index for personal-consumption expenditures rose at a 2.8% pace in the fourth quarter. The gauge, excluding food and energy prices, rose at a 1.9% rate. Other new data showed that demand for long-lasting factory goods ticked up in December, ending a strong year for the domestic economy.

The price gauge is one signal that the Federal Reserve will continue its path of raising interest rates in 2018, said Jeff MacDonald, head of fixed-income strategies at Fiduciary Trust Company International.

"The market is starting to embrace a little bit of inflation coming into the picture," said Mr. MacDonald.

Inflation is a threat to government bonds because it chips away at the purchasing power of their fixed payments.

Yields could rise further next week, when the U.S. Treasury Department is scheduled to sell $110 billion in debt, flooding the market with new supply, some analysts said.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

U.S. government bonds weakened Friday as fresh data showed that the domestic economy ended last year on a solid note, fueled by American consumers' healthy spending.

The yield on the 10-year Treasury note rose to 2.661%, capping off four consecutive weeks of gains, from 2.628% on Thursday. Yields rise as bond prices fall.

Treasury yields have risen this month as investors bet on a pickup in growth and inflation. Faster growth can cause investors to favor riskier assets while inflation chips away at the purchasing power of bonds' fixed payments.

Yields climbed Friday after new data showed that the domestic economy just finished its best year since 2014. Gross domestic product, a measure of all goods and services produced in the U.S., adjusted for inflation, slowed but rose at an annual rate of 2.6% from October through December, the Commerce Department said Friday, less than the 2.9% reading that economists surveyed by The Wall Street Journal expected.

The price index for personal-consumption expenditures rose at a 2.8% pace in the fourth quarter. The gauge, excluding food and energy prices, rose at a 1.9% rate. Other new data showed that demand for long-lasting factory goods ticked up in December, ending a strong year for the domestic economy.

The price gauge is one signal that the Federal Reserve will continue its path of raising interest rates in 2018, said Jeff MacDonald, head of fixed-income strategies at Fiduciary Trust Company International.

The yield on Treasurys maturing in two years, which tend to be more sensitive to rate increases, hit the highest level since September 2008.

"The market is starting to embrace a little bit of inflation coming into the picture," said Mr. MacDonald.

Yields could rise further next week, when the U.S. Treasury Department is scheduled to sell $110 billion in debt, flooding the market with new supply, some analysts said.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

(END) Dow Jones Newswires

January 26, 2018 16:41 ET (21:41 GMT)