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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. pending home sales in April drop by the most in

3years

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U.S. yield curve marginally deepens inversion after data

(Adds comment, data on U.S. pending home sales, PCE outlook,

graphics, updates prices)

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 has scope to cut interest rates this year.

U.S. two-year to 30-year yields all posted their biggest

daily drop in two weeks. They hit four-week peaks broadly on

Wednesday after weaker-than-expected auctions of Treasuries in

the last two sessions, raising concerns that heavy debt supply

is weighing on investor demand.

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 6.8 basis points at 4.556%.

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.

A measure of inflation during the first quarter was also

revised down to 3.3% from 3.4%, the stiffest quarterly

price-pressure growth in a year.

"The GDP second release was a little bit more encouraging on

the (personal consumption expenditures) side: a small downward

revision there that was not anticipated to have more weakness,"

said Zachary Griffiths, senior investment grade strategist at

CreditSights, in Charlotte, North Carolina.

"This is helpful for the Fed when thinking about getting

inflation under control. I also think the market is primed for a

relief rally."

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

adjusted 219,000 for the week ended May 25, also helping push

yields lower. Economists polled by Reuters had forecast 218,000

claims in the latest week.

Another piece of data also pointed to a slowing U.S.

economy. Contract signings for U.S. home purchases fell by the

most in three years in April while the overall level of activity

was the lowest since the onset of the COVID pandemic in the

spring of 2020, data showed.

The pending home sales index, which tends to predict

completed home sales transactions one to two months later, fell

7.7% in April to 72.3 from an upwardly revised 78.3 in March.

The drop was the largest since February 2021 and the index was

the lowest since the record-low reading of 71.8 in April 2020.

U.S. 30-year yields declined following the economic reports,

last down 5.8 bps at 4.685%.

On the front end, the two-year yield, which reflects the

U.S. rate outlook, dropped 5.4 bps to 4.931%.

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 is best described as a "bull flattener," a

scenario in which long-term rates are falling more sharply than

the shorter maturities and suggests inflation expectations are

moderating.

Following the GDP, jobless claims, and housing 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.

"It would be a shallow easing cycle this year and the

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

some confidence that inflation is getting to 2%," said Jim

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

Pennsylvania.

"There are not that many months ... to gain confidence on

the inflation front. So it's more of a timing thing. A rate cut

is on the table (this year)."

Markets are now looking into Friday's PCE index release, the

Fed's preferred inflation gauge. The headline number is seen

rising 0.3% in April, unchanged from the previous month, while

the core number is also expected to increase 0.3%, according to

a Reuters poll.