Bonds fall on strong GDP
Treasurys decline as stocks turn higher and government issues new debt.
NEW YORK (CNNMoney.com) -- U.S. Treasury prices fell slightly Thursday after a revised reading on second-quarter GDP showed a better-than-expected jump and the government auctioned off $22 billion of 5-year notes.
The benchmark 10-year note fell 8/32 to 101 26/32, its yield rising to 3.78% from 3.76% late Wednesday. Bond prices and yields move in opposite directions.
The price of the 30-year long bond remained relatively flat, up 3/32 to 102 2/32, with a yield of 4.37% down from 4.38%.
The short-term 2-year note fell 27/32 to 100 5/32 with its yield growing to 2.37% from 2.28%, while the 5-year bond fell 5/32 to 101 15/32, with its yield rising to 3.05%. An increase in supply typically sends prices lower.
Bonds fell a day earlier after the Treasury Department auctioned $32 billion worth of 2-year bond notes, the largest auction of 2-year notes in history.
Economic impact: The U.S. gross domestic product rose at an annual rate of 3.3% in the second quarter, according to a revised reading from the Commerce Department.
The revision surpassed the consensus estimate of 2.7% anticipated by economists polled by Briefing.com.
Economic growth between 2.5% and 3.5% is typically seen as normal for a healthy economy.
A second report also showed that new jobless claims dropped by 10,000 to 425,000 last week, indicating a stronger labor market. That figure was right in line with estimates.
Stock boost: The unexpected GDP growth sparked a rally in the stock market, with the Dow industrials gaining more than 190 points, or 1.62%.
Adding support were shares of embattled mortgage finance firm Fannie Mae (FNM, Fortune 500), which led financial stocks higher on news of a management shakeup late Wednesday.
A resurgence in Fannie Mae shares lessened the chance of a government bailout, which might have to be funded by the government issuing more bonds.
When stocks strengthen, investors typically leave the shelter of Treasurys for more lucrative stock investments.
Bond auction: Bond prices, particularly the 30-year note, flattened out after the government released the results of an auction of $22 billion of debt Thursday in the form of 5-year treasury bonds.
Investors had been nervous that there would not be many buyers at such a large auction going in to the holiday weekend. But the result was not as bad as they had feared, according to Michael Cheah, bond fund manager at AIG SunAmerica.
The 5-year note sold at about 99 31/32 with a maximum yield of 3.129%.
"The fact that it's done and over with, there's a sigh of relief," said Cheah.
Thursday's round of funding comes on the heels of the previous day's massive $32 billion 2-year note sale.
The auction added supplies of government debt to a market that is pretty expensive, said David Ader, head of government bond strategy at RBS Greenwich Capital.
"Even if you're bullish on the bond market, we are at levels that do not inspire new buying," said Ader.
Bond investors were also looking ahead to what next week's economic reports will bring, according to Ader.
On tap are several reports on labor and manufacturing, including data on nonfarm payrolls, which could send bonds higher if they are weak. 
-
In today's job market, overqualified candidates, like Mark Heinemann, may be at an advantage. More -
Thanks to sinking home prices, these 5 homebuyers were able to score deals in prime areas. More -
All credit cards are not created equal. From 7.2% to cash back, 6 great deals. More -
With the stimulus underway and unemployment rising, economic leaders weigh in. More -
A new top-of-the-line luxury sedan -- the finishing touch on a troubled brand's make-over. More
