Yields jump as U.S. third-quarter GDP growth revised up

Yields jump as U.S. third-quarter GDP growth revised up

22 Dec    Finance News, PMN Business, REU

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NEW YORK — Short-dated U.S. Treasury

yields rose and long-dated ones erased an earlier decline on

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Thursday, after data showed the economy grew at a faster pace

than previously thought last quarter.

Gross domestic product increased at a 3.2% annualized rate

in the third quarter, the government said in its third estimate

of GDP. That was revised up from the 2.9% pace reported last

month. The economy had contracted at a 0.6% rate in the second

quarter.

“It is showing how growth rebounded in the third quarter and

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hopefully, let’s say from the Fed’s perspective, it provides a

nice platform so that you can achieve a soft landing, and that’s

what we’re going to be debating I think next year,” said Kevin

Flanagan, head of fixed income strategy at WisdomTree in New

York.

Benchmark 10-year yields were little changed on

the day at 3.678%, but up from around 3.65% before the data was

released. Two-year yields gained five basis points on

the day to 4.261%.

The inversion in the yield curve between two-year and

10-year yields deepened by around three basis

points to minus 59 basis points.

Investors are evaluating how high the Federal Reserve is

likely to hike interest rates as it battles inflation but also

faces a widely expected recession next year.

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A separate report on Thursday showed the number of Americans

filing new claims for unemployment benefits increased less than

expected last week, pointing to a still tight labor market.

The release on Friday of personal consumption expenditures

(PCE) data will provide further clues on whether inflation is

continuing to moderate.

Fed officials expect to hike the central bank’s benchmark

overnight interest rate above 5% next year, and Fed Chair Jerome

Powell has stressed the need to keep rates elevated for a period

of time as they try to bring down still high price pressures.

However, fed funds futures traders are pricing for a more

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dovish scenario, with the fed funds rate expected to peak at

4.89% in May, and decline to 4.40% by the end of 2023.

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Meanwhile, analysts warned against reading too much into

this week’s market moves, with volumes declining and expected to

continue to worsen heading into the Christmas and New Year

holidays when many traders will be out, or reluctant to take

risk.

The Treasury will sell $19 billion in five-year Treasury

Inflation-Protected Securities (TIPS) on Thursday.

December 22 Thursday 9:40AM New York / 1440 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 4.23 4.3346 0.005

Six-month bills 4.525 4.6947 0.013

Two-year note 100-112/256 4.2608 0.046

Three-year note 99-240/256 4.0222 0.031

Five-year note 100-98/256 3.7888 0.012

Seven-year note 100-156/256 3.774 0.006

10-year note 103-172/256 3.6785 -0.006

20-year bond 101-4/256 3.9257 -0.003

30-year bond 104-140/256 3.7457 0.002

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 29.25 -2.25

spread

U.S. 3-year dollar swap 13.75 -0.25

spread

U.S. 5-year dollar swap 4.25 0.00

spread

U.S. 10-year dollar swap -3.75 0.25

spread

U.S. 30-year dollar swap -42.00 0.50

spread

(Reporting by Karen Brettell; Editing by Paul Simao)

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