(Bloomberg) -- Short-maturity Treasuries fell slightly after strong US economic growth and employment data made a small dent in the market's conviction the Federal Reserve will cut interest rates twice by year-end.
Yields on two- to five-year notes rose at least two basis points to session highs after the US economy's second-quarter growth rate was revised to 3.3% from 3%, exceeding economist expectations. At the same time, weekly jobless claims data showed a bigger-than-anticipated decline in new claims, a sign of labor-market strength.
"The data continues to point to a resilient consumer despite tariff uncertainties," said Subadra Rajappa, head of US rates strategy at Societe Generale.
The front of the Treasury curve is feeling the "pull and push" of whether the Fed should cut in September, Rajappa said. Although Federal Reserve Chair Jerome Powell "is tilting towards a more dovish stance, the data continues to push back on the need for cuts," she added.
Shorter-maturity Treasury yields remain near the lowest levels of the past month following a rally fueled by rising expectations for Fed rate cuts. Yields on two-year notes created via an auction this week ended Wednesday near 3.61%, the lowest level since May 1. They rebounded to 3.64% after Thursday's economic data.
Swap contracts linked to future Fed rate decisions continue to fully price in one quarter-point rate cut this year in October and a second one by year-end.
Long-maturity Treasury yields remained slightly lower on the day, while intermediate sectors were little changed ahead of an auction of seven-year notes at 1 p.m. New York time. The $44 billion auction is still projected to draw the lowest yield for the tenor since September 2024. Sales of two- and five-year notes over the past two days drew the lowest yields since then, and the new issues have rallied from those levels.
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