U.S. bonds yields jumped on Thursday, after revised data showed the economy growing faster than previously reported for the first quarter and after Federal Reserve Chair Jerome Powell repeated a hawkish monetary policy message during his European trip.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.878%
was 4.857%, up 13.7 basis points from 4.720% on Wednesday. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.848%
was 3.822%, up 11.1 basis points from 3.711% Wednesday afternoon. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.904%
was 3.89%, up 8.7 basis points from 3.803% late Wednesday.
What’s driving markets
Data released on Thursday showed that the U.S. economy grew at a 2% annual rate in the first quarter, based on updated figures after an earlier estimate of 1.3% rate.
Meanwhile, initial weekly jobless claims dropped to a one-month low of 239,000 last week from a revised 265,000 in the previous week, in a sign the U.S. labor market remains fairly robust.
The pair of reports paint a picture of an economy that’s defying expectations for a downturn despite the Federal Reserve’s aggressive campaign of interest rate hikes, which began in March 2022, to combat inflation.
During an appearance in Spain on Thursday, Fed Chairman Jerome Powell largely reiterated his hawkish message from Wednesday. “In the beginning, there was a little risk of overdoing it and a lot of risk of underdoing it. As you get closer and closer to where you think you’re going to your destination, those risks begin to become more into balance,” Powell said. “I wouldn’t say they’re in balance yet.”
Markets are pricing in an 89.3% chance of a quarter-of-a-percentage-point rate hike on July 26, which would lift the fed funds rate target to between 5.25%-5.5%, according to the CME FedWatch Tool. They see a 26.8% chance of another move of that size in September, up from 16.4% a day ago.
