10-, 30-year Treasury yields end above 4% after U.S. GDP, report on BOJ

What happened

• The yield on the 2-year Treasury
  TMUBMUSD02Y,
  4.932%
  jumped 11.4 basis points to 4.939% from 4.825% on Wednesday.

• The yield on the 10-year Treasury
  TMUBMUSD10Y,
  4.004%
  soared 16.1 basis points to 4.011% from 3.850% Wednesday afternoon.

• The yield on the 30-year Treasury
  TMUBMUSD30Y,
  4.045%
  rose 13.1 basis points to 4.058% from 3.927% late Wednesday. That’s the largest one-day jump in the 30-year yield since May 1, according to 3 p.m. Eastern time figures from Dow Jones Market Data.

• Thursday’s levels are the highest for the 2- and 10-year rates in three weeks, and the highest for the 30-year yield since Nov. 10.

What drove markets

A selloff in Treasurys on Thursday gained momentum after a report that Bank of Japan policy makers will discuss a possible tweak to their so-called yield-curve control policy on Friday. Without citing sources, Nikkei reported that BoJ officials are set to talk about a proposed change that would let long-term rates go above 0.5% to some extent.

The yen strengthened against the dollar in response to the report. In turn, the weakening dollar opened up an opportunity for investors to sell Treasury holdings, according to Tom di Galoma, managing director and co-head of rates trading for global financial-services firm BTIG. Treasury yields, which move in the opposite direction as prices, jumped further as stocks faltered.

Earlier on Thursday, data showed that the U.S. economy grew at a 2.4% annual pace in the second quarter, propelled by steady consumer spending and a rebound in business investment. That was above the 2% median estimate of economists polled by The Wall Street Journal, and compares with a 2% pace in the first quarter.

Initial jobless claims fell by 7,000 to 221,000 for the week that ended on July 22, the lowest level since February. Orders for long-lasting goods made in America jumped 4.7% in June due to a flush of new contracts for Boeing passenger planes, surpassing the 1.5% increase expected by economists.

Together, Thursday’s data fueled optimism behind a soft-landing scenario, in which the U.S. manages to avoid a recession or big uptick in unemployment at the same time inflation eases on its own.

Also on Thursday, the European Central Bank delivered a widely expected increase in interest rates — citing inflation that continues to run too hot. The ECB raised its deposit rate by 25 basis points, or a quarter of a percentage point, to 3.75%. The ECB’s action came a day after the Federal Reserve took its interest-rate target up by a similar amount to a range between 5.25% and 5.5%.

Friday is another eventful day on the U.S. economic calendar, with the PCE price index, the employment cost index, and a consumer-sentiment reading.

What strategists are saying

The policy-setting Federal Open Market Committee “has ushered in a second half of summer trading that will be defined by data dependence, and Thursday’s price action exemplified precisely that dynamic,” said BMO Capital Markets strategists Ben Jeffery and Ian Lyngen.

“A solid real GDP print defined by moderating price pressures along with robust consumption combined with another drop in jobless claims and strong durables to push yields higher in a selloff that was also fueled by speculation of a policy shift from the BoJ,” they wrote in a note.