Yields drop after retail sales unexpectedly fall

U.S. sovereign bonds rose on Tuesday after the release of two U.S. economic data points as investors looked for clues on when the Federal Reserve would raise interest rates.

U.S. retail sales declined 0.3 percent in June, while economists expected a 0.2 percent rise. Meanwhile, U.S. import prices fell 0.1 percent last month, according to the Labor Department.

The 10-year Treasury yield traded around 2.41 percent after trading slightly higher at 2.4301 percent ahead of the releases. The yield on 30-year bonds declined 4 basis points to 3.20 percent. When a bond yield falls, its price rises.

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Fed chief Janet Yellen said last week that a rise in interest rates this year would be "appropriate" and this session's data could help determine the timing of a rate move. The data also comes ahead of a testimony by Yellen to Congress on Wednesday and Thursday.

"The focus today will very much be on U.S. retail sales—an important report ahead of Yellen's testimony to Congress tomorrow," analysts at Societe Generale said in a note.

"The yield on the 10-year Treasury is back to a 2.4 percent handle and (rate) hikes are getting priced back, with September still very much in the realm of possibility," they added.

Janet Yellen
Carlos Barria | Reuters
Janet Yellen

Caution about a Greek bailout deal, which must get approval in the country's parliament this week, and a sharp fall in oil prices following a historic Iran nuclear deal provided some support to safe-haven government bond prices.

Treasury yields rose on Monday after Greek and euro zone leaders reached a deal that is likely to keep Greece in the euro zone.

U.S. oil prices meanwhile fell 2 percent after Iran and six major powers early on Tuesday clinched a nuclear deal that will see some sanctions against Tehran eased in exchange for restriction on its nuclear program.