Yields rise as traders await Friday's GDP report

NEW YORK: US benchmark Treasury yields traded at six-week highs on Thursday as investors waited for what many analysts expect to be a strong reading of gross domestic product data for the second quarter on Friday.

A faster pace of economic growth would make the Federal Reserve more likely to continue raising rates, which bodes negatively for bonds.

Traders will be scouring the details of the report to determine how well supported any uptick in growth in the headline number is.

"The surprises will come either with the initial estimate of what service spending was for households and anything that might be off about inventory adjustments and those sorts of things," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.

Bond weakness on Thursday afternoon reversed an earlier price rally after traders interpreted comments by European Central Bank President Mario Draghi as dovish.

Draghi in June said that the ECB would keep rates at their record low level "through the summer of 2019," raising questions about whether that meant a rate hike would come immediately after.

On Thursday, "people came away a little bit more satisfied that there wasn't necessarily an automatic September 2019 date that would start rate increases," Vogel said.

Benchmark 10-year notes fell 10/32 in price on the day to yield 2.971 percent, after earlier rising to 2.976 percent, its highest since June 14.

Benchmark yields have struggled to break above the 2.97 percent level that has been tested multiple times this week.

"Every time we get back to this 2.96-2.97 area on the 10-year note we find a reason to hold," said Tom di Galoma, a managing director at Seaport Global Holdings in New York, noting the yields are at the top of their Bollinger bands range.

"Breaking above that would probably be a negative sign for the marketplace," di Galoma said.

The yields also tested the 2.976 percent level on Wednesday after an agreement between the United States and European Union on Wednesday eased some trade tensions.

U.S. President Donald Trump agreed to refrain from imposing car tariffs on the European Union while the two sides negotiate to cut other trade barriers.

The Treasury Department sold $30 billion in seven-year notes on Thursday to soft demand, the final sale of $101 billion in coupon-bearing supply this week.

The government saw strong demand for a $36 billion auction of five-year notes on Wednesday, and a $35 billion sale of two-year notes on Tuesday.