Treasury yields remained largely unchanged on Thursday despite two troubling economic reports that raised concerns about the pace of U.S. growth.
First, the U.S. economy shrank at an annualized rate of 0.3% in the first quarter of 2024, marking the first quarterly contraction in three years. Second, weekly jobless claims increased to 241,000, higher than the 225,000 that economists had expected. The benchmark 10-year Treasury yield ticked down to 4.148%, and the 2-year yield eased to 3.582%.
The decline in GDP was driven in part by a surge in imports ahead of announced tariffs and by lower federal government spending. Consumer spending, while still growing, expanded at a modest 1.8% annualized rate. Inflation readings were mixed: the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose over the quarter but was essentially flat in March.
Against this backdrop, market participants do not expect the Fed to cut rates at its meeting next week, but traders and investors continue to price in the likelihood of rate reductions beginning in June. Recent movements in the bond market reflect growing concern that economic growth may be slowing, which has pushed expectations for easier monetary policy later in the year.