Yields on 10-year U.S. Treasury hit highest in 6 months on upbeat Q3 GDP, strengthens case for Fed rate hike

The U.S. 10-year Treasury yields hit highest in six months Friday after reading stronger than expected third-quarter gross domestic product (GDP), which increased bets for the Federal Reserve interest rate hike.

The yield on the benchmark 10-year Treasury note rose 2 basis points to 1.86 percent, the yield on long-term 30-year Treasury jumped 1-1/2 basis points to 2.615 percent and the yield on short-term 2-year note climbed 1/2 basis point to 0.888 percent by 12:40 GMT.

The United States advance third-quarter GDP reading increased 2.9 percent, above market expectations for a 1.3 percent result, as compared to the revised 1.4 percent reading seen in the second quarter of 2016. Personal consumption increased 2.1 percent, from the 4.3 percent reading seen in the second quarter of 2016.

Also, Core PCE increased 1.7 percent, following the 1.8 percent increase seen in the second-quarter. Exports increased 10.0 percent, alongside a 2.3 percent increase from imports. According to the release, upward pressure from private inventories contributed 0.61 percent to the headline estimate, versus -1.16 percent seen in second quarter.

On the other hand, residential investment decreased 6.2 percent in the third-quarter of 2016, versus the 7.7 percent decrease seen in the previous quarter. Alongside the improved headline result, this report clearly reflects the mixed tone of data seen throughout the quarter. Given the magnitude of the inventories decline, we see this potentially signaling positive momentum on this front in second half of 2016.

Meanwhile, the S&P 500 Futures traded 2.25 points higher at 2,125.25 by 12:40 GMT.