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US Treasuries Slip as Traders Await GDP Data for Growth Hints

(Bloomberg) -- Treasuries slipped as traders awaited economic data from the US for further signs that growth is flagging.

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The two-year yield rose four basis points to 4.11%, climbing from a 3 1/2-month low ahead of the revised fourth-quarter gross domestic product print later Thursday. The rate on the short-maturity bonds is down about 30 basis points from its peak hit earlier this month, and is on track for its biggest monthly drop since September.

Mounting worries and confusion over the impact of President Donald Trump’s threatened trade tariffs have spurred bets the Federal Reserve will need to shift its focus away from inflation to tackling economic weakness with lower interest rates.

“The market has been taken off-guard in the last week with some US macro weakness,” said Evelyne Gomez-Liechti, strategist at Mizuno International. “The risk now is whether the GDP data keeps adding to that ‘weaker-than-expected US macro’ narrative or not.”

That’s putting more attention than normal on the second reading for growth figures, said Michael Brown, senior research strategist at Pepperstone Ltd. Traders have resumed fully pricing in two quarter-point cuts by the Fed this year.

Soft readings for services PMI and home sales this week added to signs that the economy is starting to slow, helping put 10-year yields on track for their seventh weekly decline, the longest streak since 2019.

Markets face a “tug of war between potential inflation risks from the new US administration policies versus the potential consequences on the growth backdrop of that,” Laura Cooper, Head of Macro Credit and Global Investment Strategist at Nuveen, said.

There’s “quite choppy price action as markets digest the incoming data against what we’re seeing from the policy front as well,” she said.

--With assistance from James Hirai and Alice Gledhill.