U.S. government debt yields fell for the third day in a row Wednesday after new data revealed that retail sales unexpectedly fell in February, suggesting a potential stall in economic growth.
The move downward came after the yield on the 2-year Treasury note hit a high of 2.291 percent, its highest level since September 2008 when the 2-year yielded as high as 2.313 percent.
As of 3:37 p.m. ET, the yield on the benchmark 10-year Treasury note had fallen 3 basis points to 2.813 percent, while the yield on the 30-year Treasury bond shed 5 basis points to hover at 3.054 percent. Bond yields move inversely to prices.
The Commerce Department said retail sales declined for a third straight month on Wednesday as households curbed purchases of cars and other expensive items. Economists had been expecting sales to rise 0.3 percent.
January data was revised to show sales dipping 0.1 percent instead of falling 0.3 percent as previously reported. The February report marks the first time since April 2012 that retail sales have declined for three straight months.
"Yields have moved up a lot on optimism about the economy and expectations for Fed rate hikes, but the data's been a little bit softer," said Robert Tipp, chief investment strategist at PGIM Fixed Income. "It brings into question just how much stimulus you're going to see come through in the economy and if people have become overly bearish on bonds."
Meanwhile, the gap between two- and 10-year yields fell to 0.55 percentage point, down from highs above 0.7 percentage points in February. Fears of a flattening yield curve — which peaked earlier in the year before hotter-than-expected inflation data — stem from the market's belief that the Federal Reserve will continue to hike interest rates at least three times in 2018.
But according to Tipp, that dip in the spread isn't necessarily to worry about.
"I think people have to keep in mind exactly where we are. In 1988, thirty years ago, the average [Fed Funds Rate] was 2.06 percent," added Tipp. "Perception of how steep the yield curve should be may be skewed … This is a sign of health and that this market isn't unduly concerned about inflation getting above 2 percent."
U.S. producer prices increased slightly more than expected in February. The Department of Labor said on Wednesday that its producer price index rose 0.2 percent last month; economists polled by Reuters had expected PPI gaining 0.1 percent.
So-called core PPI — which excludes volatile food, energy and trade service prices — rose 0.4 percent.
President Donald Trump fired Secretary of State Rex Tillerson and then announced that he would nominate CIA Director Mike Pompeo as Tillerson's replacement.
Concerns around trade also lingered. Last week, Trump signed two declarations to impose tariffs on steel and aluminum imports — both are expected to take effect in the coming weeks. While Canada and Mexico exempt from the deal, fears over a potential trade war remain, as investors worry that countries around the world may impose their own retaliatory tariffs.
A source told CNBC on Tuesday that Washington is contemplating a trade package that would include investment restrictions, indefinite tariffs and potentially even visa restrictions on Chinese travelers.
Elsewhere, the president of the European Central Bank, Mario Draghi, told an audience Wednesday that the bank's policy would remain prudent despite the institution being more confident on where inflation was heading.
—CNBC's Silvia Amaro contributed to this report