10-year Treasury yield touches four-week high after stronger-than-expected U.S. retail sales Bond Report

By Sunny Oh

Treasury yields jumped Tuesday after a key update of consumer spending showed U.S. households remained in bright shape, potentially undercutting expectations for the Federal Reserve to pursue an aggressive easing measures this year.

What are Treasurys doing?

The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -1.04% climbed 3.1 basis points to 2.124%, its highest since June 12, while the 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -0.95% was up 2.1 basis points to 2.633%. The 2-year note rate /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y +0.46% rose 3.3 basis points to 1.866%. Debt prices move in the opposite direction of yields.

What’s driving Treasurys?

Bond traders saw a rush of economic data early Tuesday. Retail sales climbed 0.4% in June, well above the 0.1% gain expected from MarketWatch polled economists. The buoyant spending data helped counter concerns that the U.S. economy’s momentum was flagging.

However, import prices fell 0.9% in June, the biggest drop in six months, suggesting inflationary headwinds could make it difficult for the Fed to achieve its 2% target. But investors said much of the decline was due to slumping oil prices. Industrial production was flat in June.

U.S. central bank officials including Dallas Fed President Robert Kaplan and Chicago Fed President Charles Evans emphasized the possibility of rate-cuts before the end of this year.

Fed Chairman Jerome Powell said the U.S. central bank should keep watch on trends in global monetary policy. Analysts expect more dovish monetary policy not just from the Fed, but also the European Central Bank, the Bank of Japan, and a whole host of central banks from overseas.

See : Fed chief Powell says he thinks core inflation picked up a bit in June

Read : Bond market on verge of tripping a signal that could lead to sharp selloff

What did market participants’ say?

“[Retail sales] seems to suggest that if the Fed lowers the fed funds rate at the end of the month, it might be the only time they do it in 2019,” said Kevin Giddis, head of fixed income at Raymond James.

“While today’s economic data doesn’t necessarily change what the market expects the FOMC to do later this month (ease by 25 basis points), it does continue to suggest that the U.S. economy isn’t about to roll over and play dead,” said Giddis.

What else is on investors’ radar?

The Reserve Bank of Australia’s minutes from its July meeting showed it was willing to further cut its benchmark cash rate , following its decision to reduce interest rates to 1% in July.

The 10-year Australian government bond yield /zigman2/quotes/211347066/realtime BX:TMBMKAU-10Y -1.19% retreated 5 basis points to 1.40%, Tradeweb data show.

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