Treasuries Close Sharply Higher On Disappointing GDP Data

(RTTNews) - Treasuries moved sharply higher during trading on Friday, more than offsetting the modest pullback seen in the previous session.

Bond prices showed a strong move to the upside in early trading and remained firmly positive throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 7.6 basis points to 1.675 percent.

With the drop on the day, the ten-year yield more than offset the 2.7 basis point gain posted on Thursday, once again falling to its lowest closing level in well over a year.

The strength among treasuries was largely in reaction to a Commerce Department report showing that U.S. economic growth slowed more than expected in the last three months of 2014.

The report said U.S. gross domestic product climbed 2.6 percent in the fourth quarter following the 5.0 percent jump seen in the third quarter. Economists had expected GDP to increase by about 3.2 percent.

Trade was a big drag on fourth quarter GDP, adding to recent concerns about the impact of economic weakness overseas.

In a private luncheon with Senate Democrats on Thursday, Federal Reserve Chair Janet Yellen said the U.S. economy is strong but expressed some concerns about the situation in Europe.

The Fed's monetary policy statement indicated that the central bank will include international developments as part of its assessment of when to raise interest rates.

However, Paul Ashworth, Senior U.S. Economist at Capital Economics, noted that the jump in GDP in the third quarter included a "suspicious looking 16.0% spike in national defense spending, which was duly reversed with a 12.5% decline in the fourth quarter."

"Without that spike, which we're pretty sure is just due to poor seasonal adjustment, third-quarter GDP growth would have been 4.3% and fourth-quarter growth would have been 3.2%," Ashworth said. "This is a more accurate gauge of the 'slowdown' in the pace of growth."

Economic data is likely to remain in focus next week, with traders likely to pay particularly close attention to the monthly jobs report next Friday.

Ahead of the jobs report, trading could also be impacted by the release of reports on personal income and spending, manufacturing and service sector activity, and private sector employment.