NEW YORK: US Treasury yields rose on Tuesday after a final reading of U.S. third-quarter economic growth came in stronger than expected, reinforcing the view that the Federal Reserve would proceed with a steady pace of interest rate increases next year.
Gross domestic product grew at a 2.0 percent annual pace, instead of the 2.1 percent rate reported last month, the Commerce Department said in its third estimate. While the figure was revised lower, it beat expectations of economists polled by Reuters for a drop to 1.9 percent.
In addition, the final third-quarter reading of core PCE, a measure of domestic core inflation which is also the Fed's preferred inflation measure, rose to 1.4 percent and slightly beat expectations for an unchanged reading of 1.3 percent.
"This data is a little better for the economy than expected, so that makes it less likely that (the Fed's) tightening program is going to be derailed," said David Coard, head of fixed income sales and trading at Williams Capital Group in New York.
The latest projections from Fed policymakers last week showed that they anticipated four rate hikes next year. The modest rise in yields occurred after yields on Treasuries maturing between seven and 30 years hit one-week lows on Monday.
While the data marginally supported the view that the Fed was on track to hike rates next year, analysts said they did not view the data as having a significant impact on Fed expectations since liquidity remained thin, with many traders already having closed out the year.
Analysts said low liquidity ahead of the end of the year raises the risk of losses given potentially erratic market activity, leading many traders to cease trading.
"A lot of people's books are closed for the year, and after they got through the Fed, they are waiting for 2016," said Justin Lederer, a Treasury analyst at Cantor Fitzgerald in New York.
He was referring to the Fed's first rate hike in nearly a decade last week, a move which was widely anticipated.
Benchmark 10-year Treasury notes were last down 8/32 in price to yield 2.225 percent, from a yield of 2.197 percent late Monday. U.S. 30-year Treasury bonds were last down 17/32 in price to yield 2.952 percent, from a yield of 2.925 percent late Monday.
U.S. two-year notes were last down 1/32 in price to yield 0.973 percent, from a yield of 0.956 percent late Monday.
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