Treasuries Move Sharply Lower Following Upbeat Economic Data

Treasuries moved sharply lower over the course of the trading session on Thursday, more than offsetting the rebound seen in the previous session.

Bond prices came under pressure in early trading and saw further downside as the day progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, spiked 16.1 basis points to 4.012 percent.

The sell-off by treasuries came following the release of a batch of upbeat U.S. economic data, including a Commerce Department showing an unexpected acceleration in the pace of economic growth in the second quarter.

The report said real gross domestic product surged by 2.4 percent in the second quarter after jumping by 2.0 percent in the first quarter. Economists had expected the pace of GDP growth to slow to 1.8 percent.

The Commerce Department said the unexpected acceleration in GDP growth primarily reflected an upturn in private inventory investment and an acceleration in nonresidential fixed investment.

The positive contributions were partly offset by a downturn in exports and decelerations in consumer spending, federal government spending, and state and local government spending.

The upbeat data has raised some concerns about the outlook for interest rates following Wednesday’s monetary policy by the Federal Reserve.

“The Fed will likely see the second quarter’s solid GDP growth as a little too strong,” said Bill Adams, Chief Economist for Comerica Bank. “The Fed wants the economy to grow in low gear for a time to open up a margin of slack capacity and calm price pressures.”

He added, “On balance, the second quarter’s better than expected GDP growth makes the Fed more likely to raise interest rates again in the second half of 2023, likely at the November first decision.”

The Labor Department also released a report unexpectedly showing a modest decrease in first-time claims for U.S. unemployment benefits in the week ended July 22nd.

The report said initial jobless claims slipped to 221,000, a decrease of 7,000 from the previous week’s unrevised level of 228,000. Economists had expected jobless claims to inch up to 235,000.

A separate report released by the Commerce Department showed new orders for U.S. manufactured durable goods soared by much more than expected in the month of June.

Trading on Friday may be impacted by a reaction to a report on personal income and spending in the month of June, which includes a reading on inflation said to be preferred by the Fed.

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