Treasury yields carve out new 2024 highs after first-quarter core PCE inflation comes in hot

By Vivien Lou Chen

Treasury yields finished at their highest levels since November on Thursday, after data showed core PCE inflation came in hot for the first quarter even as U.S. economic growth slowed to 1.6%.

What happened

The yield on the 2-year Treasury BX:TMUBMUSD02Y jumped 6.5 basis points to 4.998%, from 4.933% on Wednesday, after piercing the 5% level. Thursday's level is the highest since Nov. 13, based on 3 p.m. Eastern time figures from Dow Jones Market Data.The yield on the 10-year Treasury BX:TMUBMUSD10Y climbed 5.4 basis points to 4.706%, from 4.652% on Wednesday. Thursday's level is the highest since Nov. 1.The yield on the 30-year Treasury BX:TMUBMUSD30Y rose 3.6 basis points to 4.819%, from 4.783% on Wednesday. Thursday's level is the highest since Nov. 6.

What drove markets

First-quarter GDP data released on Thursday showed that the U.S. economy grew less than the 2.2% median estimate of economists polled by the Wall Street Journal. Even so, the report contained little evidence that the economy is headed for trouble.

The GDP report also revealed that core inflation, excluding food and energy, came in at a 3.7% annualized rate based on quarterly data from the personal-consumption expenditures price index. That's up from a 2% rate in the fourth quarter.

Read: GDP report revives stagflation fears in the market, with growing risk of a Fed rate hike seen

Read: Is another inflation scare coming? GDP seems to say yes.

Thursday afternoon's $44 billion auction of 7-year notes was met with good demand, with non-dealer bidding of 86.1% coming in above the 84.9% average, according to BMO Capital Markets strategist Vail Hartman.

What analysts are saying

Yields were sharply higher on Thursday "despite weaker-than-expected GDP growth. It makes sense, however, given significantly worse-than-expected quarterly inflation," said Chris Low, chief economist for FHN Financial in New York.

"Normally, a 1.6% GDP increase would bolster the case for easing, but not under these circumstances," Low wrote in an email.

-Vivien Lou Chen

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04-25-24 1553ET

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