Bonds

US data drive yields lower as new economy fears set in

Treasurys


U.S. Treasurys yields fell on Tuesday after U.S. retail sales for April came in below economists' forecasts, though growth expectations for the second quarter were little changed.

U.S. retail sales barely rose in April and a gauge of consumer spending slipped, held back by declines in receipts at furniture, electronic and appliance stores, restaurants and bars and online retailers.

The Commerce Department said on Tuesday retail sales edged up 0.1 percent last month, less than economist forecasts of 0.4 percent, though the figure for March was revised upward to 1.5 percent.

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While the market was disappointed, "the number is not as bad as the headline,'' said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York, noting the rise from March's 1.5 percent growth figure showed still-solid growth.

Benchmark 10-year Treasurys have held in a tight range since January, with yields oscillating between 2.57 percent and 2.82 percent as investors analyze data for signs of when the Federal Reserve is likely to begin raising rates, which many expect next year.

A trader works on the floor of the New York Stock Exchange.
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Ten-year notes were last up 14/32 in price to yield 2.61 percent, down from 2.66 percent late on Monday. Thirty-year bonds gained 29/32 in price to yield 3.45 percent, down from 3.49 percent.

"Retail sales was fairly weak, but the takeaway is that its not going to lower second quarter GDP projections,'' said Gennadiy Goldberg, interest rate strategist at TD Securities in New York.

"Data momentum has been improving but its choppy, and that will keep the market fairly balanced going forward,'' Goldberg said.

Recent data including the jobs report for April have shown accelerating growth and increased investor hopes that weakness from earlier in the year, which many blame on bad weather, is ebbing.

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The next focus of attention will be the U.S. Producer Price Index for April on Wednesday and the Consumer Price Index for April on Thursday, which will be watched for signs that price pressures are increasing.

Low inflation is seen as complicating the Fed's ability to raise interest rates unless there are signs that inflation will rise back to the Fed's 2 percent target.

The Fed bought $1.03 billion in bonds due between 2039 and 2043 on Tuesday as part of its ongoing purchase program. It will purchase between $350 million and $600 million in notes due from 2024 to 2031 on Wednesday.

—By Reuters