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TREASURIES-Retail sales gain lifts U.S. 10-year yield to 7-year peak

* Fed's Williams, Kaplan see gradual U.S. rate hikes on track

* Futures imply traders up bets on 3 more rate hikes in 2018

* Two-year yield highest since August 2008

* Five-year yield highest since 2009

* U.S. yield curve bounces from flattest in over a decade

(Updates market action, adds quote) NEW YORK, May 15 (Reuters) - A solid rise in U.S. retail sales in April supported hopes of pickup in economic growth in the second quarter on Tuesday and touched off a selloff in the Treasury debt market, propelling the benchmark 10-year note's yield to a near seven-year high. A quicker pace of business and consumer activities, if sustained, will likely allow the Federal Reserve to increase key overnight borrowing costs in the coming months, analysts and traders said. "It's a better start to the second quarter," said Thomas Roth, head of U.S. Treasury trading at MUFG Securities America in New York. "The Fed will likely go again in June." This view on the next Fed rate increase was reinforced by comments from San Francisco Fed President John Williams and Dallas Fed chief Robert Kaplan at separate public appearances. However, Williams and Kaplan downplayed the likelihood the central bank is considering a faster pace of rate hikes as productivity remains sluggish and inflation, while firming towards the Fed's 2-percent goal, is not overheating.

The 10-year Treasury yield reached 3.095 percent which was its highest level since July 2011. It was last at 3.091 percent, up almost 10 basis points from late on Monday. Traders unloaded their bond holdings after the Commerce Department said retail sales rose 0.3 percent last month, matching analyst forecasts. The latest figures supported the notion that consumer spending appeared on track to accelerate after slowing sharply in the first quarter. The two-year yield, which is most sensitive to traders' view on Fed policy, was up nearly 4 basis points at 2.585 percent after touching 2.585 percent, which was the highest since August 2008, Reuters data showed. Interest rates futures implied traders now saw more than a 50 percent chance the Fed would raise rates three more times by year-end. The five-year Treasury yield touched its highest level in about nine years at 2.9323 percent. The Treasuries selloff steepened the yield curve from its flattest level in more than decade. The spread between five-year and 30-year yields grew by 1.5 basis points to 28.80 basis points, according to Tradeweb. Tuesday, May 15 at 1425 EDT (1825 GMT): Price

US T BONDS JUN8 140-27/32 -1-29/32 10YR TNotes JUN8 118-140/256 -0-180/256 Price Current Net Yield Change (pct) (bps) Three-month bills 1.88 1.9153 0.016 Six-month bills 2.035 2.0847 0.000 Two-year note 99-152/256 2.5889 0.042 Three-year note 99-156/256 2.7617 0.061 Five-year note 99-40/256 2.934 0.082 Seven-year note 98-224/256 3.0556 0.096 10-year note 98-36/256 3.0926 0.098 30-year bond 98-32/256 3.223 0.095

DOLLAR SWAP SPREADS

Last (bps) Net Change

(bps)

U.S. 2-year dollar swap 21.25 0.50

spread

U.S. 3-year dollar swap 15.50 0.25

spread

U.S. 5-year dollar swap 8.00 0.00

spread

U.S. 10-year dollar swap 2.75 0.25

spread

U.S. 30-year dollar swap -8.25 1.00

spread

(Reporting by Kate Duguid and Richard Leong; Editing by Dan Grebler and Bernadette Baum)