By Sam Goldfarb 

U.S. government bonds stabilized Friday despite a relatively strong report on U.S. economic growth, as investors took a breather following a selloff that has pushed yields to their highest levels in months in recent days.

Gross domestic product grew at a seasonally adjusted annual rate of 2.9% in the third quarter, above the 2.5% growth economists surveyed by The Wall Street Journal had forecast. Personal-consumption expenditures, however, rose just 2.1% after gaining 4.3% during the prior period.

In recent trading, the yield on the benchmark 10-year Treasury note was 1.852%, according to Tradeweb, compared with 1.870% just before the report and 1.843% Thursday. Yields fall when bond prices rise.

"It's clear that we're not trading the headline," said Jim Vogel, interest-rates strategist at FTN Financial. "Instead we're looking more at personal consumption," which fell below expectations, he added.

Government bonds across the developed world have sold off sharply in recent days, pushing bond yields to their highest levels in nearly five months.

A few developments have been blamed for the selloff, including a large amount of corporate and government debt issuance and an encouraging report on the U.K. economy.

But analysts also point to larger factors behind the move that have been building slowly.

In recent weeks, a few reports in the U.S. and Europe have pointed to small upticks in inflation. In addition, concerns have mounted that the ultraloose monetary policies of central banks in Japan and Europe, including large-scale bond-buying, may have reached their technical and practical limits. And there has been a growing chorus of voices calling for more fiscal stimulus from governments, which could drive up yields by stoking inflation and increasing the supply of government bonds.

In a sign that the selloff reflects a shift in the economic outlook, the 10-year break-even rate, or the yield premium investors demand to hold a 10-year Treasury note relative to the 10-year Treasury inflation protected security, hit 1.73 percentage point Thursday.

That suggests investors expect a U.S. inflation rate of 1.73% on average over the next 10 years, up from a low of 1.36% in June.

Inflation chips away at the fixed returns on bonds and is the main threat to long-term government bonds. It is also a key focus of central banks, including the Federal Reserve, which targets a 2% annual inflation rate.

Despite Friday's GDP report and a solid run of monthly jobs gains, most investors expect the Fed to hold off on raising interest rates at its next meeting on Nov. 1-2 but then move in December.

A perennial concern of bond investors is that the Fed could be too slow to raise rates, allowing inflation to pick up momentum and forcing the Fed to play catch up by raising rates abruptly. Most, though, don't see that happening.

At its last reading, the Fed's preferred measure of inflation had increased 1% from the year-earlier period or 1.7% excluding the volatile categories of food and energy. In September, Fed officials signaled that they anticipate two rate increases next year, down from their previous estimate of three increases.

Even after their recent selloff, bond yields remain at very low levels. The 10-year Treasury yield has climbed from its record close low of 1.366% set in July, but it traded at 2.273% at the end of 2015.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

October 28, 2016 09:49 ET (13:49 GMT)