Treasuries Move To The Upside Following Record Drop In GDP

Treasuries Move To The Upside Following Record Drop In GDP

After ending the previous session nearly unchanged, treasuries showed a notable move to the upside during trading on Thursday.

Bond prices moved higher early in the session and remained firmly positive throughout the day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 3.8 basis points to 0.541 percent.

With the decrease on the day, the ten-year yield ended the session at its lowest closing level in well over four months.

The strength among treasuries came following the release of a report from the Commerce Department showing a record contraction in U.S. economic activity in the second quarter.

The report said real gross domestic product plummeted at an annual rate of 32.9 percent in the second quarter following a 5.0 percent slump in the first quarter.

While GDP showed the biggest quarterly drop on record, the plunge was not quite as steep as the 34.1 percent nosedive expected by economists.

Consumer spending led the decrease, cratering by 34.6 percent in the second quarter, as the coronavirus-induced lockdowns in late March and April forced many consumers to stay at home.

The steep drop in second quarter GDP should not have come as much of a surprise to traders, although seeing the actual data still seemed to increase the appeal of safe havens such as bonds.

“We already know that activity rebounded strongly in May and June, setting the stage for a strong rise in GDP in the third quarter,” said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, “Nevertheless, with the more recent resurgence in virus cases starting to weigh on the economy in July, a continued ‘V-shaped’ recovery is unlikely.”

A separate report from the Labor Department showed initial jobless claims increased for the second straight week in the week ended July 25th, although claims rose by much less than expected.

The report said initial jobless claims edged up to 1.434 million, an increase of 12,000 from the previous week’s revised level of 1,422,000.

Economists had expected jobless claims to rise to 1.450 million from the 1.416 million originally reported for the previous week.

Trading activity on Friday may be impacted by reaction to reports on personal income and spending, consumer sentiment and Chicago-area business activity.