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TREASURIES-Bond prices fall sharply on positive U.S. economic data
February 12, 2016 / 4:15 PM / 2 years ago

TREASURIES-Bond prices fall sharply on positive U.S. economic data

* Treasuries reverse gains made in week as stocks, oil recover

* January retail sales data stronger than expected

By Tariro Mzezewa

NEW YORK, Feb 12 (Reuters) - U.S. Treasury prices slipped on Friday after a report showed that U.S. consumer spending regained momentum in January, suggesting the economy may not be slowing as much as many investors have speculated in recent weeks.

The U.S. government debt market came off a streak of gains linked to safe-haven demand driven by investor concerns about slowing global growth and growing skepticism about the Federal Reserve’s ability to continue raising interest rates.

The Commerce Department said retail sales excluding automobiles, gasoline, building materials and food services increased 0.6 percent last month after an unrevised 0.3 percent decline in December. Consumer spending is being supported by a strengthening labor market, which is starting to lift wages.

“It’s a strong report and it will give investors some confidence that the economy is still in relatively good shape and it will restore some confidence in risky assets,” said Cheng Chen, interest rates strategist at TD Securities in New York.

Other economic data showed import prices fell for a seventh consecutive month, driven by the dropping price of petroleum products.

Restored investor confidence was visible on Friday morning as investors retreated from safe-haven government debt and as stocks gained. U.S. crude prices also jumped nearly 7 percent after a grueling week of losses.

A recovery in the price of U.S. crude suggests slightly higher inflation. Expectations of higher inflation tend to cause selling pressure in long-dated Treasuries since inflation erodes interest payouts on those bonds.

On Thursday, short-term rate futures, a proxy for expectations for the Federal Reserve, showed the market seeing no chance of an interest rate hike by the central bank this year.

The benchmark 10-year note was last down 20/32 in price to yield 1.713 percent, up from 1.644 percent late on Thursday. The 10-year yield reached a session high of 1.715 percent on Friday morning.

The 30-year bond was last down one full point in price to yield 2.567 percent, up from 2.520 percent on Thursday. The bond yield reached a session high of 2.569 percent in morning trading.

On Wall Street, the benchmark S&P 500 stock index was up 1.2 percent. (Reporting by Tariro Mzezewa; Editing by Meredith Mazzilli)

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