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U.S. Q1 GDP at 1.3%, lower than previous estimate

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U.S. jobless claims rise in latest week

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U.S. yield curve deepens inversion after data

(Adds comment, bullets, details of data, yield curve, rate

futures, byline, updates)

By Gertrude Chavez-Dreyfuss

NEW YORK, May 30 (Reuters) - U.S. Treasury yields slid

on Thursday after data showed the world's largest economy grew

more slowly than previously estimated in the first quarter as

consumer spending was revised lower, suggesting the Federal

Reserve is firmly on track to cut interest rates this year.

U.S. yields hit four-week peaks across the board on

Wednesday after weaker-than-expected auctions of Treasuries in

the last two sessions, raising concerns about demand for

government debt.

Those gains though dissipated going into Thursday's economic

data, with analysts saying the back-up in yields the last few

sessions may have been overextended.

The benchmark 10-year yield fell after the data

and was last down 5.4 basis points (bps) at 4.571%.

U.S. economic activity, as measured by gross domestic

product, grew at a 1.3% annualized rate in the first three

months of the year, data showed, down from the advance estimate

of 1.6% and significantly slower than the 3.4% pace in the final

three months of 2023.

U.S. jobless claims, meanwhile, rose to a seasonally

adjusted 219,000 for the week ended May 25. Economists polled by

Reuters had forecast 218,000 claims in the latest week.

"The U.S. economy is back at the forefront after this

morning's data, which came in less than expected," said Jim

Barnes, director of fixed income at Bryn Mawr Trust in Berwyn,

Pennsylvania.

He noted that the data pushed Treasury yields lower, and the

move was also helped by the fact that yields "had retraced

higher a little bit too much".

U.S. 30-year yields also declined following the economic

reports, last down 4.7 bps at 4.697%.

On the front end of the curve, the two-year yield, which

reflects the U.S. rate outlook, dropped 4.8 bps to 4.937%

.

The U.S. yield curve meanwhile slightly deepened its

inversion on Thursday. The spread between U.S. two- and 10-year

yields, widely viewed as a predictor of economic recessions, was

at minus 37.5 bps, compared with minus 36.5 bps

late on Wednesday.

The curve had reduced its inversion on Wednesday, reflecting

concern about the growth and inflation outlook.

Following the GDP and jobless claims data, U.S. interest

rate futures priced in one rate cut of 25 bps in 2024, possibly

starting in November, according to LSEG's rate probability app.

"This year, I think it would be a shallow easing cycle and

the rationale is that time is running out. The Fed needs to

regain some confidence that inflation is getting to 2%," Bryn

Mawr's Barnes said.

"There are not that many months that they have to gain

confidence on the inflation front. So it's more of a timing

thing. So a rate cut is on the table, maybe two."