Treasuries Fall After 4Q GDP Revised Higher and as Oil Surges

  • Earlier, rebound from lows was led by German and U.K. Bonds
  • Month- and quarter-end flows may limit declines into Friday

Treasuries fell Thursday after the U.S. fourth-quarter economic growth rate was revised higher and crude oil rose, supporting inflation expectations.

Yields were higher by one to four basis points at 3 p.m. in New York, inside Wednesday’s ranges. After erasing overnight declines led by gains for European bond markets, Treasuries resumed falling after the growth rate for the personal consumption component of U.S. GDP was revised to 3.5 percent from 3 percent. Crude oil climbed nearly 2 percent, exceeding $50 for first time in two weeks, after Kuwait’s oil minister said OPEC is in talks to extend production cuts.

  • Flows included 2s5s steepener in futures that lifted spread from lowest level since Nov. 10, amid surge unleashed by U.S. presidential election, and sale of 28k June 2018 eurodollar futures; 2s10 curve also rebounded from YTD lows 
  • 5s30s curve steepened for the first day in eight, rising 1.6bp to 107.4bp, biggest increase since March 15 FOMC decision
  • Earlier, USTs were led higher by bunds after soft German regional CPI data for March, and by gilts, which face a month-end index extension more than double the long-term average
  • USTs may benefit into Friday’s close from flows tied to month- and/or quarter-end
  • Duration extension estimate for Bloomberg Barclays Treasury Index 0.07yr vs 0.05yr historical average for March, and stocks outperformed bonds during 1Q, suggesting that rebalancing flows will favor bonds
  • Also, Japanese fiscal year ends March 31, and may clear decks for rebound in buying of foreign bonds, aided by improved valuation on currency-hedged basis

— With assistance by Edward Bolingbroke

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