Most Treasury yields eased Wednesday morning as data showed U.S. economic growth unexpectedly contracted by a revised 1.6% annual pace, which was deeper than initially reported.
What’s happening?
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
3.073%
was at 3.069% versus 3.122% at 3 p.m. Eastern on Tuesday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.107%
fell to 3.106% from 3.206% on Tuesday. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.226%
was down to 3.224% from 3.311%.
What’s driving markets?
Recession worries continued to circulate in financial markets on Wednesday after the final reading of U.S. first quarter GDP showed the contraction in gross domestic product — the official scorecard for the economy — was deeper than the previously reported 1.5% decline. A record surge in the U.S. trade deficit was largely responsible for the decline.
The first-quarter contraction was the first since the onset of the pandemic in early 2020. Meanwhile, second-quarter GDP is on track to grow less than 1%, according to the latest Wall Street estimates.
In remarks at a European Central Bank conference in Sintra, Portugal, Federal Reserve Chairman Jerome Powell said U.S. policy maker’s aim is to have growth moderate and that he sees a path back to 2% inflation that includes a sustained strong labor market, but warned that there’s no guarantee that will happen. Later in the day, ECB President Christine Lagarde is set to also give a speech; ahead of her comments, the German 10-year bund yield BX:TMBMKDE-10Y was down 5.5 basis points at 1.57%.
The benchmark 10-year Treasury yield is sitting about 30 basis points shy of the multiyear high reached a few weeks ago, seemingly rangebound as investors struggle to assess how much the central bank will tighten policy amid burgeoning inflation and an economic slowdown.
Thursday will bring PCE price inflation, a report that will be closely monitored by policy makers.
What analysts are saying
“The poor performance of the equity and bond markets this year suggests that market participants have already discounted a lot of bad news,” James Solloway, chief market strategist at SEI.
“The froth certainly appears to have been taken out of the financial markets by this year’s stock-and-bond pullback. That’s the good news,” Solloway wrote in an email. “The bad news is that an economic recession and a corresponding decline in earnings might not yet be fully priced into markets.”
