Despite the U.S. gross domestic product meeting economic forecasts with a 4.1 percent growth rate in the second quarter, Treasury yields fell today with the benchmark 10-year Treasury down to 2.962 as of 2:00 p.m. ET. Similarly, the 30-year Treasury yield dropped down to 3.089.
Historically, strong GDP numbers are a precursor to higher yields, but according to analysts, yields dipped as a result of the personal consumption expenditure price index–the Fed’s preferred method of measuring inflation–it rose at a 1.8% annual rate during the second quarter, which was down from a 2.5% rate during the previous quarter. Rising inflation tends to hamper the interest payments provided by bonds.
“You take a look at the numbers a little closer, with regards to strong growth and inflation not really pushing higher, it’s a pretty good environment for the Fed, it doesn’t really change the current path they’re on, it doesn’t need to speed up or slow down. We’re kind of back to this Goldilocks environment, this is a perfect recipe for the Fed to hike rates,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
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The growth rate is the GDP’s fastest since the third quarter of 2014 and the third-best growth rate dating all the way back to the Great Recession. Furthermore, the Department of Commerce revised its first-quarter numbers to show a 2.2 percent increase rather than 2 percent.