* U.S. 1st-quarter GDP comes in weaker than expected
* U.S. core PCE inflation gauge 2 percent
* U.S. labor costs rise in 1st quarter
* June Fed rate hike chances seen higher after GDP data
(Adds comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, April 28 U.S. Treasury prices ended
higher on Friday on last-minute month-end buying, reversing
losses fueled by data showing steady growth in U.S. inflation
and wages despite soft economic growth in the first quarter.
Expected month-end changes to portfolio benchmarks supported
long-dated Treasuries, said Subadra Rajappa, head of U.S. rates
strategy at Societe Generale in New York.
Afternoon market movements nullified the earlier rise in
yields, which move inversely to prices, following a mixed report
on U.S. gross domestic product. Data showed the U.S. economy in
the first quarter grew at its slowest pace in three years, but
details of the report suggested a more upbeat outlook.
GDP grew at a 0.7 percent annual rate, the weakest since the
first quarter of 2014. First-quarter U.S.
employment costs rose 0.8 percent, higher than market
expectations, an indication of rising wage growth.
But there were positive elements. The core inflation
measure, the PCE index, was 2 percent, compared with 1.3 percent
in the fourth quarter. The headline PCE deflator was also up, by
2.4 percent. These figures suggested a build-up in inflation,
which should keep the Federal Reserve on track to raise
benchmark U.S. interest rates at least twice this year.
Rate futures have priced in a 71 percent probability of a
Fed policy tightening in June after the GDP data, up from about
68 percent before the report's release.
"We continue to forecast two additional FOMC interest rate
hikes in 2017, to be followed by two ... in 2018," said John
Herrmann, director of interest rates strategy at MUFG Securities
in New York.
In late trading, benchmark 10-year U.S. Treasury notes
were up 3/32 in price to yield 2.285 percent, down
from 2.296 percent late on Thursday. Yields earlier hit session
highs of 2.338 percent in the wake of the U.S. GDP data.
U.S. 30-year bond prices rose 6/32, yielding
2.954 percent, down from Thursday's 2.965 percent.
On the front end, U.S. two-year yields were at 1.269 percent
, up from Thursday's 1.258 percent.
Next week, the Fed will hold a monetary policy meeting, with
investors widely expecting the U.S. central bank to hold rates
steady. Investors will instead focus on the post-meeting
statement and its signals for subsequent meetings.
"We believe the Committee's goal will be to acknowledge the
softer run of data while still keeping June on the table as a
live meeting," said JP Morgan economist Michael Feroli in New
(Editing by Bernadette Baum and James Dalgleish)