April 26, 2019 / 1:31 PM / in 3 months

TREASURIES-Yields fall on weak inflation data, shrug off GDP reading

(Recasts, adds analyst quotes, report details, updates yields)

By Kate Duguid

NEW YORK, April 26 (Reuters) - U.S. Treasury yields fell following Friday’s first-quarter growth report as weak inflation data tempered the strong headline figure.

Gross domestic product increased at a 3.2 percent annualized rate in the first quarter, the Commerce Department said in its advance GDP report released on Friday, versus the 2.0 percent estimated by economists polled by Reuters.

But Federal Reserve officials are likely to shrug off the surge in growth last quarter and focus on a measure of domestic demand that excludes trade, inventories and government spending, which increased at only a 1.3% rate, the slowest since the second quarter of 2013, after increasing at a 2.6% pace in the October-December quarter.

The Fed is also likely to focus on the disappointing core personal expenditures consumption price index figure, which increased at only a 1.3% rate versus 1.8% in the prior quarter. PCE is the Fed’s preferred inflation metric.

“Offsetting the GDP growth was the GDP deflator, which was 0.9 percent,” Stan Shipley, strategist at Evercore ISI, said of the GDP price index. “From a Treasury perspective, the Fed is going to focus on the inflation number,” which is why yields fell, he said.

Yields across maturities were lower, with the biggest loses at the short end of the curve. The two-year yield, a proxy for investor expectations of interest-rate hikes, fell 5.2 basis points, last at 2.278%. The benchmark 10-year government note yield was last 3.9 basis points lower at 2.495%. (Reporting by Kate Duguidd; editing by Jonathan Oatis)

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