US Treasury yields rose on Friday after data showed that inflation is rising and the recent US economic slowdown isn't as bad as previously thought. US consumer spending rose solidly in January and underlying inflation picked up by the most in four years, keeping Federal Reserve interest rate increases on the table this year.
Inflation was "stronger than expected," said Lou Brien, a market strategist at DRW Trading in Chicago. "Now you've got the PCE core right up against the 10-year yield I can see people taking something off." The so-called core PCE price index increased 1.7 percent in the 12 months through January, the largest rise since July 2014. The core PCE, the Fed's preferred inflation measure, rose 1.5 percent in December.
Benchmark 10-year notes fell 21/32 in price to yield 1.77 percent, up from 1.70 percent late on Thursday. Bonds began the day weaker as oil and stock markets rallied, raising hopes that the volatile selloff in the energy and equity markets this year may be nearing an end. Treasuries added to price losses after the Commerce Department said gross domestic product increased at a 1.0 percent annual rate in the fourth quarter, instead of the previously reported 0.7 percent.
"We got some pretty surprising GDP data, an upward revision, and not too many people had pegged that," said Thomas Simons, a money market economist at Jefferies LLC in New York. "The pessimism that characterized all of January and the beginning of February is beginning to wear off a little bit." Despite the yield increases, the government had to pay more to sell $28 billion in seven-year notes in its auction that was postponed from Thursday because of a technical issue. The debt sold at a high yield of 1.568 percent, 2 basis points above where the notes traded before the auction. Traders said demand for the notes may have been dented by the moving the sale to Friday.
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