Treasury yields edge up from three-week lows

US 10-YR
US 30-YR

U.S. Treasurys were mostly flat on Friday at the end of a week of steady price gains fueled by increasing worries that economic growth in the U.S. may be slower than policymakers believe.

A better-than-expected consumer sentiment report earlier in the morning saw long-term maturity Treasury yields rise slightly from three-week lows touched on Thursday. Yesterday's dip came after fixed-income investors were surprised by earlier data showing the U.S. economy contracted more than previously thought in the first quarter.

Yields on 30-year Treasurys last traded to yield 3.37 percent, down 8/32 in price, after falling lower than 3.34 percent earlier.

Benchmark 10-year notes dropped 1/32 in price to yield 2.54 percent, after hitting a low of less than 2.51 percent.

Buying was also spurred on Thursday by data, including a report showing U.S. consumer spending rose less than expected in May. Signs of slower growth tend to bolster hopes the Federal Reserve will keep ultra-low interest rates in place longer.

"The market is not accepting the higher growth trajectory that the Fed and blue chip economists are telling us we will see in the second half," said Vishal Khanduja, portfolio manager for Calvert Investments. "That's why we aren't seeing much higher yields."

Economists, market strategists and portfolio managers were ratcheting down forecasts of U.S. gross domestic product, institutional investors said.

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Analysts at TD Securities said Thursday they had cut their GDP annualized growth forecast for the second quarter to 3 percent from 3.6 percent.

"If the print is negative, almost three percent for the first quarter, the bar to print 2 percent total GDP [growth] for the year as a whole is high, and you have to really come out for the last half,'' Khanduja said.

Looking ahead, trading in Treasurys was unlikely to get firm direction until the monthly employment report is released next week, Khanduja said.

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The market "is digesting" the most recent data, Khanduj said. "It is looking for a lot more current information that's not backwards looking. So the biggest information we will get will be next week, when the we get the unemployment report."

—By Reuters