GDP exceeds expectations, triggering a rise in U.S. Treasury yields; the market re-evaluates the Federal Reserve's rate cut intensity

The release of the US third-quarter economic data triggered fluctuations in the bond market. Official figures show that the GDP growth rate reached 4.3% in this quarter, marking the fastest expansion in nearly two years. This unexpectedly strong economic performance led to significant adjustments in US Treasury bonds.

US Treasury Yields Move Inversely to Economic Data

Following the data release, US Treasury bonds faced downward pressure. The 10-year US Treasury yield briefly declined during trading but then rebounded to around 4.165%, the intraday high. In comparison, the yields on German and UK 10-year government bonds were respectively 3 basis points and 2 basis points lower than US bonds, reflecting a re-pricing by investors of the US economic outlook.

In the early trading session, yields experienced a brief dip, but as the market digested the strong GDP data, selling pressure on bonds increased. This reaction aligns with market logic—faster economic growth typically signals greater inflationary pressures, which in turn necessitate the central bank to maintain higher interest rates.

Subtle Shift in Federal Reserve Policy Expectations

Market perceptions of the Federal Reserve’s policy stance have quietly shifted. For the upcoming policy meeting in January, investors’ expectations for rate cuts decreased from 4 basis points to 3 basis points compared to the previous trading day. Although the change is small, it reflects a subtle shift in market sentiment—hawkish expectations are slightly prevailing.

The strong economic growth data provides the Fed with reasons to continue maintaining higher interest rates, which also explains why US Treasury yields rose after the GDP release. The market is currently reassessing the pace and magnitude of future rate cuts.