US Treasuries dropped on Thursday as Q1 US economic growth showed signs of sticky price pressures, dimming the outlook for Federal Reserve interest-rate cuts.
GDP growth in the quarter was softer than expected, but core PCE prices QoQ were hotter than expected. Meanwhile, weekly jobless claims were softer than anticipated.
As a result, US Treasuries declined, and yields on 10- and 30-year bonds rose to their highest point this year. These factors saw traders push back the expected timing of the first Fed rate reduction to December.
GDP rose at an annualized rate of 1.6%, while core PCE prices QoQ increased by a higher-than-expected 3.7%. According to Bloomberg, swaps traders now see around 33 basis points of Fed rate reductions for all of 2024. This is significantly below the more than six quarter-point reductions they expected at the start of the year.
Citi analysts said in a note Thursday that they think markets "have been too fast to price-out the potential for a first rate cut in June or July."
"Our base case remains for June, but that would mean core inflation data needs to start cooperating faster than Fed officials expect," said the bank.