The difference between yields on U.S. two- and 30-year debt narrowed to lowest level since November 2012 on speculation the Federal Reserve will raise interest rates next year while inflation remains restrained.
Yields on two-year notes rose as a report showed growth in the U.S. economy grew more than forecast in the third quarter, while 30-year bonds rallied. Core personal consumption expenditures, a measure of inflation, rose 1.4 percent, unchanged from the previous quarter. The U.S. is scheduled to sell $29 billion of seven-year notes today.
“It’s about low inflation and the Fed’s hiking potential,” said David Ader, head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut.
The gap between two-year and 30-year yields, known as the yield curve, fell 253 basis points, or 2.53 percentage points, the lowest level on a closing basis since November 2012, as of 8:52 a.m. in New York, according to Bloomberg Bond Trader prices. The two-year note yield added one basis point to 0.49 percent, while the 30-year bond yield fell three basis points to 3.02 percent.
The economy capped its strongest six months in more than a decade, as gains in government spending and a shrinking trade deficit made up for a slowdown in household purchases.
GDP grew at a 3.5 percent annualized rate in the three months ended September after a 4.6 percent gain in the second quarter, Commerce Department figures showed today in Washington. It marked the strongest back-to-back readings since the last six months of 2003. The median forecast of 87 economists surveyed by Bloomberg called for a 3 percent advance.
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