Treasury prices slipped to session lows after the U.S. reported its economy growing faster last quarter than originally thought.
The world's largest economy expanded 1.7% instead of 1.5%, according to the Commerce Department. This confirmed expectations widely held by economists, who saw better trade activity and consumer spending lift output between April and June.
Demand for safe-haven Treasurys waned following the release, sending prices to the lows of the session. Benchmark 10-year notes fell 7/32 in price to yield 1.657%, while 30-year bonds lost 18/32 to yield 2.772%. Bond yields increase when prices fall.
But beyond economic data reflecting past conditions, investors are focused on what it means for the Federal Reserve. The central bank has been watching economic readings closely to determine if more monetary stimulus is needed to support growth.
A report on Tuesday provided concrete evidence that housing prices are turning around. Still ahead, the U.S. will report pending home sales during July.
Better data may encourage policy makers to hold off on buying more bonds—a move more bond investors have come to expect will be announced at the Fed's Sept. 12-13 policy meeting. Minutes from the prior meeting revealed a greater inclination among its members to deliver support, and soon.
That puts the onus on the coming Jackson Hole, Wyo., economic symposium, where Fed Chairman Ben Bernanke is due to speak Friday. A clearer signal that the Fed intends to conduct more bond-buying operations would lift demand for Treasurys.
A more passive easing option is to push out the timing of its first policy-rate increase. The current guidance from the Fed is for late 2014. Many bond strategists see this timetable getting extended to mid- or late-2015.
Such a move would benefit middle-dated Treasurys, such as five- or seven-year notes.
The U.S. Treasury is scheduled to sell $35 billion in five-year debt Wednesday afternoon. Rate strategists at Nomura Securities CNS.TH 0.00% expect to see a "solid" auction as easing expectations continue to build ahead of Mr. Bernanke's speech.
