U.S. Treasuries jump after Q3 GDP marginally slows; Fed rate cut keep yields subdued

The U.S. Treasuries jumped during Wednesday’s evening session after the country’s third-quarter gross domestic product (GDP) marginally slowed, albeit keeping hopes alive, ahead of market expectations.

Also, the ADP non-farm employment added to the joy in financial markets ahead of the Federal Reserve’s monetary policy meeting, scheduled to be held today at 18:30GMT.

Strong and solid market pricing of a 25bp rate cut by the central bank kept debt yields at bay; however, the tone of the policy statement and Governor Jerome Powell’s speech, will be of prime importance regarding future rate path.

The yield on the benchmark 10-year Treasury yield slumped 2 basis points to 1.814 percent, the super-long 30-year bond yield plunged nearly 3-1/2 basis points to 2.299 percent and the yield on the short-term 2-year traded tad 1 basis point down at 1.626 percent by 14:30GMT.

Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the third quarter of 2019 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.0 percent.

The increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), federal government spending, residential fixed investment, state and local government spending, and exports that were partly offset by negative contributions from non-residential fixed investment and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the third quarter reflected decelerations in PCE, federal government spending, and state and local government spending, and a larger decrease in non-residential fixed investment. These movements were partly offset by a smaller decrease in private inventory investment, and upturns in exports and in residential fixed investment.

Lastly, all eyes in the US today will be on the conclusion of the latest FOMC meeting. With economic momentum slowing, risks to the outlook skewed to the downside, and various Committee members having noted the importance of acting pre-emptively, the FFR target range is expected to be cut by 25bps to 1.50-1.75 percent, Daiwa Capital Markets reported.

The vote split will be closely watched – September’s meeting saw two members vote to keep rates unchanged, while one member voted for a 50bps cut – as will Chair Powell’s post-meeting press conference for any insight into the near-term policy outlook, the report added.

Meanwhile, the S&P 500 Futures remained nearly flat at 3,030.88 by 14:35GMT.