Bond Report

May 17, 2022, 4:08 p.m. EDT

10-year Treasury yield hits one-week high as U.S. April retail sales climb, Powell sees ‘softish landing’

By Vivien Lou Chen and William Watts

Treasury yields rose to their highest levels in at least a week on Tuesday, after April’s retail sales data showed the economy still has strength and Federal Reserve Chairman Jerome Powell said the U.S. could plausibly have a “softish landing.”

What yields are doing

  • The 10-year Treasury note yield (XTUP:BX:TMUBMUSD10Y) rose 9.2 basis points to 2.969% from 2.877% at 3 p.m. Eastern on Monday. That’s the highest level since May 10, based on 3 p.m. yields, according to Dow Jones Market Data.

  • The 2-year Treasury note yield (XTUP:BX:TMUBMUSD02Y) climbed 12.8 basis points to 2.696% from 2.568% on Monday afternoon. That’s the highest yield since May 6 and the biggest one-day rise since April 1.

  • The yield on the 30-year Treasury bond (XTUP:BX:TMUBMUSD30Y) jumped 7.7 basis points to 3.161% from 3.084% late Monday. That’s the highest level since May 9.

What’s driving the market

Data released on Tuesday showed U.S. retail sales climbed in April by a solid 0.9% and signaled the economy still has plenty of vigor. Economists polled by The Wall Street Journal had expected a 1% advance. In addition, U.S. industrial output was up by 1.1% last month, the fourth straight monthly gain of 0.8% or greater.In remarks at The Wall Street Journal’s Future of Everything conference, Powell stressed his resolve to curb inflation but said the central bank could achieve a “softish landing” for the U.S. economy rather than a severe downturn. Still, he said “there could be some pain” as the Fed moves resolutely to bring down inflation.

Last week, the Fed chairman acknowledged that the central bank probably should have raised rates “a little sooner.” In a radio interview, he also said that the Fed’s ability to achieve a so-called soft landing, a term for tightening monetary policy without sending the economy into a deep downturn, wasn’t fully within the control of policy makers.

What analysts say

“Powell was open to moving rates past neutral if necessary and added that the landing could be a bit bumpy with an emphasis on balancing the labor market and restoring price stability,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery. “Powell’s comments on Tuesday only served to reinforce the Fed’s current mantra of combating inflation at all costs,” with the costs being economic performance.

Link to MarketWatch's Slice.