TREASURIES-Prices gain after retail sales disappointment
* Prices gain after weak retail sales data
* Fed buys $916 million bonds due 2023-2031
* Bernanke testimony on Wednesday next focus
NEW YORK, July 15 (Reuters) - U.S. Treasuries prices rose Monday after retail sales increased less than expected in June, signaling that growth in the second quarter of this year may be weaker than previously expected. The Commerce Department said on Monday retail sales increased 0.4 percent last month as demand for automobiles soared, though sales of building materials fell. Economists polled by Reuters had forecast retail sales, which account for about 30 percent of consumer spending, rising 0.8 percent after a previously reported 0.6 percent gain in May.
"It was a softer month and there was a downward revision to the previous month," said Michael Cloherty, head of U.S. rates strategy at RBC Capital Markets in New York. The data is unlikely to reduce the likelihood that the Federal Reserve will pare back its bond purchases this year, however, Cloherty added. Treasuries yields have jumped to two-year highs since Fed Chairman Ben Bernanke said in June that the U.S. central bank may reduce its bond purchases this year if the economy continues its momentum. The comments have left investors even more focused on economic data releases. "When the Fed is telling you they are data dependent the market lives and dies on every piece of information," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York. Investors covering short-positions may have added to Monday's price gains, he added. Benchmark 10-year note yields were last up 7/32 in price to yield 2.56 percent, down from 2.64 percent before the retail sales data. The yields have increased from around 2.20 percent before Bernanke spoke on June 19 and reached a two-year high of 2.76 percent on July 8. A weaker economy may make it less likely that the Fed will reduce its buybacks, though data would likely have to turn significantly worse to affect the Fed's thinking. "It's not like you need to have the economy surging to get them to taper, you just need to have it not get dramatically weaker," said RBC's Cloherty. The Fed views the size of its bond holdings as having a stimulative impact on the economy by holding yields lower than they would otherwise be, and the central bank is seen as unlikely to sell its holdings for some time. "We think buying will go into the second quarter of next year and so their portfolio will get a lot bigger," said Cloherty. The next focus for the market will be Bernanke's semiannual testimony this Wednesday and Thursday, which will be watched for further signs over the timing and speed of any reduction in bond purchases. Bernanke's testimony will be released at 8:30 a.m. (1230 GMT) on Wednesday. The Fed bought $916 million in debt due from 2023 and 2031 on Monday as part of its ongoing purchase program.