Treasuries outlook: US bonds fall; GDP growth backs Fed hike

US Treasuries prices declined on Friday after Federal Reserve Chair Janet Yellen somewhat revived expectations of an interest rate increase by year-end and data showed the nation's economy grew more than previously estimated in the second quarter.
Treasuries prices edged up from their session lows in late trading as the Standard & Poor's 500 and Nasdaq Composite indexes turned negative, led by heavy losses in the biotech sector.
In a speech late on Thursday, Yellen said she expected the Fed to begin raising rates later in 2015, as long as inflation remained stable and the US economy was strong enough to boost employment.
Traders and analysts had been watching closely. The policy-setting Federal Open Market Committee had decided to leave rates unchanged a week ago, causing uncertainty in bond and equity markets.
"The market is reacting to what Yellen said and taking a breather from all the activity we saw last week following the FOMC statement," said Subadra Rajappa, head of rates strategy at Societe Generale in New York.
US gross domestic product rose at a 3.9 percent annual pace between April and June, faster than the 3.7 percent reported last month. The data supports the case that the US economy may be gaining enough strength to withstand a rate increase.
Meanwhile, US House of Representatives Speaker John Boehner unexpectedly announced he would step down at the end of October, sparking concern among analysts and traders about the possibility of a government shutdown close to the October or December FOMC meetings.
In afternoon trading, 10-year Treasuries notes were down 12/32 in price for a yield of 2.164 percent, up 4 basis points from late on Thursday.
The 30-year bond was down 1 point in price to yield 2.955 percent, up 5 basis points on the day. The two-year yield, which rises with expectations of higher US rates, hit a one-week high of 0.7430 percent before retreating to 0.700 percent, up 2 basis points on the day.
Treasuries yields ended 1 to 4 basis points higher on the week.
Interest rates futures implied traders slightly raised their view that the Fed would raise rates by year-end to 39 percent from 35 percent on Thursday.