(Updates yields, table; adds analyst comment) NEW YORK, May 15 (Reuters) - The yield on the U.S. 10-year Treasury note surged on Tuesday to its highest level since July 2011 after data showed retail sales increased modestly in April. The benchmark government yield reached a high of 3.069 percent in early trade, blowing through the key psychological level of 3 percent it hit in late April for the first time in four years. The rise in April sales, as well as a revision higher of March data, pushed yields up enough to drive through the next significant support level of 3.051 percent. "The break of these levels is pretty key given that youve taken out the last two cycle highs," said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York. Key support levels are prices at which a downward trend can pause, given an uptick in demand. As prices drop, demand increases, which in turn slows or halts the fall in prices. The next key support level above 3.051 percent, according to Kohli, is 3.212 percent, last passed on July 1, 2017. Technical drivers - rather than economic fundamentals - offer a plausible explanation for Tuesday morning's move. The modest increase in retail sales data was offset by a softer-than-expected Consumer Price Index report for April, which last week lowered expectations that inflation was on the rise. Inflation drives up Treasury yields because the Federal Reserve becomes more likely to intervene and hike interest rates. "I don't think that marginal pip after the big miss from CPI and a bunch of the other details from the last few weeks suggests this is purely driven by the health of the economy," said Kohli. Nevertheless, he said "there is some information there. It may not be consistent with the themes of still-anemic growth, and not terribly wide spreads, spending appetite from consumers, but it does show some kind of strength. And so far, that's been enough to get investors to sell, or at least not buy as many 10-years as they did in the past." The Commerce Department said on Tuesday that retail sales rose 0.3 percent last month, as rising gasoline prices weighed on discretionary spending. But consumer spending appeared on track to accelerate after slowing sharply in the first quarter.
The two-year Treasury yield was last at 2.564 percent, up 1.7 basis points from late Monday. The 30-year bond yield was last at 3.180, up 5.2 basis points from late Monday.
May 15 Tuesday 10:42AM New York / 1442 GMT Price
US T BONDS JUN8 141-17/32 -1-7/32 10YR TNotes JUN8 118-208/256 -0-112/2
Price Current Net Yield % Change
Three-month bills 1.88 1.9153 0.016 Six-month bills 2.04 2.0899 0.005 Two-year note 99-162/256 2.5683 0.021 Three-year note 99-176/256 2.7343 0.033 Five-year note 99-82/256 2.898 0.046 Seven-year note 99-28/256 3.0178 0.058 10-year note 98-120/256 3.0539 0.059 30-year bond 98-220/256 3.1843 0.056
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 21.25 0.50
U.S. 3-year dollar swap 15.25 0.00
U.S. 5-year dollar swap 8.00 0.00
U.S. 10-year dollar swap 2.50 0.00
U.S. 30-year dollar swap -8.50 0.75
(Reporting by Kate Duguid; Editing by Chizu Nomiyama and Dan Grebler)