U.S. Treasury yields rise despite disappointing retail sales

166
3

By Karen Brettell NEW YORK, Aug. 17 - U.S. Treasury yields rose from session lows on Tuesday after data showed a mixed picture of the economy, reversing an earlier yield drop on ongoing concerns about slowering global growth and the spread of COVID + 19 variants. U.S. retail sales fell 1.1% in July, more than economists expected, as shortages weighed on purchases of vehicles and other goods. Data for June was revised downward to show retail sales rising 0.7% instead of rise by 0.6% as previously reported. Other data showed that production at U.S. factories surged in July, boosted by an acceleration in motor vehicle output as automakers either canceled or pared annual retooling shutdowns to work around a global semiconductor shortage. 'It was a bit of a counterintuitive reaction, perhaps the market was expecting an even weaker print on retail sales, said Gennadiy Goldberg, an interest rate strategist with TD Securities in New York, noting that Industrial production 'came out stronger and pushed yields higher. Benchmark 10-year note yields were last at 1.253%, little changed the same day, after falling as low as 1.217%. Some of the yield increases may also have been part of a pattern, after investors closed a bond rally on Monday when the New York session opened. 'We missed on overnight sales and had the retracement of the retail rally. It was the same as yesterday, I think that was perhaps in some investors' minds at opening the N.Y. session that this would be faded to some degree during the U.S. hours, said Michael Lorizio, senior fixed income trader at Manulife Investment Management in Boston. Yields fell on Monday with disappointing Chinese economic data and after Taliban took over Kabul's capital, Kabul. The spread of coronavirus variants has also raised doubts that businesses will be able to normalize as quickly as previous expected. 'The US 10 year is here for a reason. The global economy is slowing. The virus has renewed global supply chain issues. The US Consumer is sticking out, and the U.S. consumer is showing signs of hesitancy as we get ready to re-open schools, Gregory Faranello, head of U.S. rates at AmeriVet Securities said in a report. Investors are also considering how the Federal Reserve's expected increase in bond purchases will affect yields. Some economists and analysts doubt that the U.S. Central Bank will announce the move as soon as September, although others say it is unlikely until December. The Treasury is expected to cut issuance as it moves past large COVID - 19 related spending, which could offset some of the impact of fewer purchases by the Fed. 'It's going to occur at a time when the supply across the entire curve will be reduced to some degree by the Treasury, so I think there are a lot of factors that make the taper less of a concern in terms of the technical impact on the bond market, said Lorizio. The Fed will release minutes from its July meeting on Wednesday.