U.S. Treasury yields ebbed lower on Thursday morning, as investors continued to digest the Federal Reserve’s latest policy decision.
The yield on the benchmark 10-year Treasury note fell 1 basis point to 1.249% at 4:20 a.m. ET. The yield on the 30-year Treasury bond dipped 1 basis point to 1.898%. Yields move inversely to prices.
The Fed on Wednesday held its benchmark interest rate near zero, following a two-day policy meeting.
The Fed’s statement said “progress” had been made on its employment and inflation targets. However, Fed Chairman Jerome Powell cautioned that “substantial further progress” had not yet been reached on these goals.
PNC chief economist Gus Faucher said the comments indicated that the Fed had started the “tapering clock” on paring back its asset purchases.
Tiffany Wilding, U.S. economist at PIMCO, said on Thursday that the Fed’s statement suggests that it could announce the first reduction in bond purchases as early as September.
However, Wilding said it “reaffirmed our view that December is the most likely timing for any announcement.”
The first estimate for U.S. gross domestic product growth in the second quarter is due to be released at 8:30 a.m. ET, which includes core personal consumption expenditure data for the quarter.
Paul Jackson, global head of asset allocation research at Invesco, cited Bloomberg data which said GDP is expected to have grown 8.5% in the second quarter on an annual basis, up from 6.4% in the first quarter.
Jackson said this would be an “impressive rate of growth” that would likely have been fueled by a rise in consumer spending.
As for the core PCE data, Jackson noted that the consensus view had forecast growth of 6.1% in the second quarter, up from 2.5% in the first quarter.
He pointed out that core PCE data was the Fed’s “favorite measure of inflation” and a strong GDP report would “further support the notion that asset purchase tapering could start later this year (probably during Q4, in my opinion).”
However, Jackson said recent data has suggested some loss of economic momentum as the second quarter progressed, indicating that it may have been the strongest quarter of the year, particularly with the recent uptick in Covid-19 infections.
“This may convince the Fed to delay tapering for longer than we previously expected,” he said.
In terms of data due to be released on Thursday, the U.S. Department of Labor is set to share the number of jobless claims filed last week at 8:30 a.m. ET.
The number of pending home sales in the U.S. in June is set to come out at 10 a.m. ET.
Auctions are scheduled to be held on Thursday for $40 billion of 4-week bills, $35 billion of 8-week bills and $62 billion of 7-year notes.
