Prices for U.S. Treasurys fell on Monday as data showed U.S. consumers unexpectedly increased their buying last month, suggesting underlying strength in the world's biggest economy.
The Commerce Department said on Monday retail sales edged up 0.1 percent last month, instead of dropping 0.3 percent as expected by economists in a Reuters poll.
"This bodes well for the rest of the second quarter," said Paul Dales, senior U.S. economist at Capital Economics in Toronto.
As a result, "any slowdown in real consumption in the second quarter will be modest," he added.
The benchmark 10-year Treasury dropped 6/32 in price on Monday to yield 1.924 percent, compared with 1.9 percent late on Friday. The 30-year bond slipped 18/32 in price to yield 3.127 percent, compared with 3.096 percent late on Friday.
"It's amazing how sentiment has just changed from 'we're going to a lot lower on yields' to right back to approaching contacts not too far from the highs of the year in yields," said Justin Lederer, a Treasury strategist at Cantor Fitzgerald in New York.
A continued climb in the dollar against the yen also helped erode Treasury prices overnight. The yen slumped further past 100 to the dollar after Group of Seven officials avoided censuring Japan over the country's massive monetary easing effort.
That stimulus program has led to speculation that Japanese investors will seek yields elsewhere, seeking out riskier, higher-yielding assets for their money.
In contrast, U.S. investors are pondering the possibility that the Federal Reserve could pare back or stop its asset-buying program as soon as this year.
While the unemployment rate has slipped lower recently, at 7.5 percent the rate still remains a full point off the 6.5 percent Fed policymakers want to see.
US Treasury Yields
Recent economic data have proven mixed, as well, with some figures supporting a labor market recovery and others painting a more ambiguous picture.
While a Wall Street Journal article over the weekend fueled speculation the Fed could be weighing exit strategies, some analysts were skeptical.
The sell-off in 10-years could be temporary, suggested Priya Misra, a rates strategist with Bank of America Merrill Lynch in New York.
"We don't expect the Fed to begin reducing the pace of purchases until they believe that the recovery is more sustainable and the economy is able to withstand fiscal tightening," Misra said. "That would require at least waiting for the summer months to pass, in our view. Thus, we recommend owning Treasuries, looking for the 10-year to drift back towards 1.75 percent in the next month."