Bond yields tick up after US economy slows less than expected

NEW YORK: US Treasury yields rose on Thursday after the Commerce Department reported that the American economy slowed less than expected in the fourth quarter.

Signs of cooling economic growth had rocked financial markets and led the Federal Reserve to pause its monetary tightening. But gross domestic product data on Thursday suggested fears of an impending recession may be overblown.

Yields across maturities ticked up, with the biggest gains recorded in the middle of the yield curve. The benchmark 10-year government yield, a proxy for market sentiment about the overall health of the economy, rose 1.5 basis points, last at 2.708 percent.

"Even if we have some bumpy numbers in the first quarter for GDP and associate numbers, the world's not ending and the risk of recession is not nearly as close as we thought at 8:29 this morning," said Stan Shipley strategist at Evercore ISI.

Solid consumer and business spending led to a 2.6 percent increase in GDP, which was slower than 3.4 percent growth in the previous quarter but above the 2.3 percent forecast of economists polled by Reuters. It remained below the Trump administration's 3 percent target.

Growth has slowed as the boost from the White House's $1.5 trillion tax cut fades. It has also been restrained by a trade war between the United States and China, which economists say is making businesses and households more cautious about spending.

Two-year yields, which reflect market expectations of Federal Reserve interest-rate hikes, rose by 2.8 basis points. The Fed has put its monetary tightening on hold, but strong economic data could increase the chances the central bank will resume raising rates. The market response to the data however, suggests this may not be enough to end the Fed's pause.

Fed Chair Jerome "Powell made it quite clear: they want to get inflation, at least temporarily, above 2 (percent). The 2 percent target is not a ceiling but a central tendency. And it has been a long time since the central tendency on the core PCE inflator has been 2 percent," said Shipley.

The release of the GDP report was delayed by a 35-day partial shutdown of the government that ended on Jan. 25, which affected the collection and processing of economic data.

The Commerce Department said while it could not quantify the full effects of the shutdown, it estimated the closure had subtracted about one-tenth of a percentage point from GDP. It also said the growth estimate was based on incomplete data that was subject to further revision.