TREASURIES-Yields gyrate lower investors mull weak GDP and stagflation scenario

NEW YORK, April 30 (Reuters) - U.S. Treasury yields seesawed lower after a weaker-than-expected read on first quarter U.S. growth underscored market reasoning that White House tariff uncertainty will both weaken growth and increase inflation in a dreaded "stagflation" scenario.

Gross domestic product decreased at a 0.3% annualized rate last quarter, the Commerce Department said in its advance estimate, much weaker that forecast 0.3% growth rate forecast by economists polled by Reuters, and the 2.4% growth from the October-December period.

The survey was, however, concluded before data on Tuesday showed the goods trade deficit surged to an all-time high in March amid record imports, which prompted a sharp downgrade of GDP estimates.

At the same time the GDP deflator, a proxy for inflation, was 3.7%, higher than last quarter's 2.3% and the expected 3.0%.

Lou Brien, market strategist at DRW Trading in Chicago said it looked like real final sales were the weakest since the pandemic, and before that since 2009, which may have initially supported bonds before traders dug into the inflation components and got out again to lift yields.

But that was also short lived as Wall Street opened sharply lower in a risk off mood that encompassed the bond market on the back of the first real economic hit from President Donald Trump's trade polices.

"Reconsidering, they probably looked over to the inflation measures, the GDP deflator and the PCE core, both significantly higher than anticipated. And so there was a little bit of a push me pull you on the bond market," he said.

The Q1 core Personal Consumption Expenditure price index came in at 3.5%. The market will turn its attention to March's monthly PCE price index at 10:00 a.m. EDT/1400 GMT, which ranks as the Federal Reserves favorite indicator to assess how inflation is doing against its 2% target.

Earlier, yields ticked lower after the release of the ADP National Employment report showing 62,000 new jobs in April, fewer than the previous month's downwardly revised 147,000.

ADP, along with Tuesday's Job Opening's and Labor Turnover Survey (JOLTS) serve as runway indicators to Friday's April payrolls report, likely to be the biggest news event of the week.

The yield on the benchmark U.S. 10-year Treasury note was off 1.8 basis points from late Tuesday at 4.156%. The yield on the 30-year bond rose 0.4 bp to 4.652%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 53.9 basis points, steeper than late Tuesday's +52 bp.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was 4.3 bp lower at 3.615%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.304% after closing at 2.292%.

The 10-year TIPS breakeven rate was last at 2.223%, indicating the market sees inflation averaging about 2.2% a year for the next decade. (Editing by Nick Zieminski)