10-year Treasury yield steady at 4.9% even after third-quarter U.S. GDP report

What’s happening

• The yield on the 2-year Treasury
  BX:TMUBMUSD02Y
  was down 5.4 basis points to 5.067% from 5.121% on Wednesday.

• The yield on the 10-year Treasury
  BX:TMUBMUSD10Y
  fell 4.1 basis points to 4.911% from 4.952% Wednesday afternoon.

• The yield on the 30-year Treasury
  BX:TMUBMUSD30Y
  slipped 2.3 basis points at 5.067% from 5.090% late Wednesday.

What’s driving markets

Data released on Thursday showed that the economy rose at a 4.9% annual pace in the third quarter, defying expectations for a slowdown. Economists polled by The Wall Street Journal had expected a 4.7% increase in gross domestic product, the official scorecard for the economy.

Meanwhile, durable-goods orders jumped 4.7% in September, mostly due to a flush of new contracts for Boeing airplanes, and initial jobless claims rose slightly to 210,000 for the week that ended Oct. 21. The U.S. trade deficit in goods widened 1.3% to $85.8 billion in September, according to the Commerce Department’s advanced estimate.

The Fed’s preferred inflation gauge, the core PCE index, will be released on Friday.

Ahead of that data, markets priced in a 99.8% probability that the Fed will leave interest rates unchanged between 5.25%-5.5% on Nov. 1, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% by the subsequent meeting in December was seen at 25.1%.

Treasury will auction $38 billion of 7-year notes at 1 p.m. Eastern time on Thursday.

German 10-year bund yields
BX:TMBMKDE-10Y
slipped 3.6 basis points to 2.848% after the European Central Bank kept interest rates steady as expected, by holding the deposit rate at 4%.

What analysts are saying

“There are already economists dismissive of Q3 growth as a fluke about to fade in the fourth quarter. It is too early to take slower growth for granted, however, especially after three quarters of consistently stronger-than-expected economic activity,” said Chris Low, chief economist for FHN Financial in New York.

“Growth this strong does not force a rate hike next week, but it means the Fed will indicate it is still contemplating higher rates. The Fed cannot declare tightening over with growth this strong and inflation still above target,” Low said in a note.