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Treasury Yields Gain Despite Slower-Than-Expected GDP Growth

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Treasury yields jumped on Wednesday even as investors parsed through key economic data that showed slower growth.

The yield on the 10-year Treasury was up by more than 9 basis points to 3.522%. The 2-year Treasury yield climbed more than 15 basis points to 4.078%.

Yields and prices move in opposite directions. One basis point equals 0.01%.

Gross domestic product, a measure of all goods and services produced for the period, rose at a 1.1% annualized pace in the first quarter, much worse than the 2% estimate per economists surveyed by Dow Jones. The growth rate followed a fourth quarter in which GDP rose 2.6%.

The bond market could be reacting to the increase in the personal consumption expenditures price index, an inflation measure that the Federal Reserve follows closely. The PCE jumped 4.2%, ahead of the 3.7% estimate.

"The combination of softer consumption and higher inflation along with the headline miss leaves the Q1 growth profile uninspired at best," Benjamin Jeffery, BMO's rate strategist, said in a note. "The inflation print is driving the lion's share of the bear flattening move as the higher core-PCE numbers have come to the detriment of the front-end."

The data could influence policy decisions made by the Fed at its meeting next week, where a 25-basis point interest rate hike is expected. Investors will also be scanning the central bank's guidance for clues about how long rates will stay elevated and when rate cuts may be implemented.

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