U.S. Government bonds rise modestly on weak investor sentiments; Kaplan’s speech in focus

The U.S. Treasuries were pushed modestly higher Friday as investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil. Also, markets largely shrugged off better than expected jobless claims and final second quarter GDP revisions (+1.4 percent, up from +1.1 percent seen in the preliminary release).

The yield on the benchmark 10-year Treasury note fell 1 basis point to 1.544 percent, the yield on 5-year bond also dipped 1 basis point to 1.104 percent and the yield on short-term 2-year note slid 2 basis points to 0.726 percent by 12:20 GMT.

The final second quarter gross domestic product (GDP) reading increased +1.4 percent (preliminary: +1.1 percent), well below market expectations for a +1.2% result, as compared to the revised +0.8 percent reading seen in 1Q16 (previous +1.1 percent). Personal consumption increased +4.3 percent, versus the +1.6 percent reading seen in the first quarter of 2016. Core PCE increased +1.8 percent, following the +2.1 percent increase seen in 1Q16.

Moreover, residential investment decreased -7.7 percent in 2Q16, versus the +7.8 percent increase seen in 1Q16. Exports increased +1.8 percent in 2Q16, alongside a +0.2 percent increase from imports. According to the release, downward pressure from private inventories contributed -1.16 percent to the headline estimate, versus -0.41 percent seen in 1Q16.

Additionally, US Initial jobless claims for the week ending 24 September August increased +3k to 254k, versus the revised 251k reading seen in the week prior (previous 252k), below expectations for a 260k result. The 4-week average was reported at 256.0k, down from the revised 258.3k reading seen in the week prior (previous 258.5k). Meanwhile, continuing claims for the week ending 17 September decreased to 2.062mln, versus the 2.108mln reading seen prior. The insured unemployment rate held unchanged at 1.5 percent.

In addition, the US Treasuries have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Federal Reserve's target. Crude oil prices dropped as investors cashed in profit after relishing 7 percent of gain in the past two sessions after OPEC confirmed that the group has struck a deal to lower crude output at its policy meeting in November. The International benchmark Brent futures fell 1.14 percent to $49.23 and West Texas Intermediate (WTI) also tumbled 1.09 percent to $47.31 at 11:00 GMT.

Lastly, markets now look ahead to a handful of data releases to finish off the week on Friday, highlighted by personal income/spending, Chicago PMI and University of Michigan consumer sentiment releases.

Meanwhile, the S&P 500 Futures traded flat at 2,148 by 12:30 GMT.