US Treasury yields rose Friday following data showing the nation's economy grew 2.6 percent in the final quarter of 2017 and the governor of the Bank of Japan said inflation is finally close to reaching its target. Gross domestic product grew slower than the 3 percent increase forecast among economists polled by Reuters.
Nevertheless, the market response was muted, with benchmark 10-year note yields falling within a basis point, before paring losses, suggesting investors remained confident in the underlying health of the economy and the Federal Reserve's plan to hike interest rates in March.
The GDP "number looked like a bit of a disappointment, but when you strip out trade and inventories you end up with GDP growth - excluding those two factors - that was well above 4 percent," said Brian Daingerfield, macro strategist at NatWest Markets in Stamford, Connecticut.
The advance estimate of GDP offered insight into the US economy before President Donald Trump's tax cuts took effect. Trump has previously cited 3 percent growth as a target rate for the country. The GDP number "should give Federal Reserve officials some cover to offer a stronger statement at the January FOMC next week," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
Treasury yields also rose in afternoon trading after Bank of Japan Governor Haruhiko Kuroda said wages and prices were gradually rising, though there remained a number of factors preventing the central bank from reaching its 2 percent inflation target.
Kuroda said the central bank would continue its policy of quantitative easing, citing challenges to the economy posed by globalization and a "tenacious" deflationary mindset. However, the Bank of Japan is the second-largest holder of Treasuries in the world and any suggestion of tightening monetary policy can spook markets.
At 3:26 pm (2026 GMT), the yield on 10-year Treasury notes was 2.660 percent, above Thursday's close at 2.621 percent. The two-year note yield reached a high of 2.132, its highest since September 2008.