Reuters
Treasuries Lower Despite Soft Sales Data
Wednesday July 14, 9:30 am ET
By Wayne Cole
NEW YORK (Reuters) - U.S. Treasury debt prices slipped on Wednesday after retail sales figures proved no softer than many had expected, triggering a round of profit-taking.
A dip in import prices did offer relief to those worried about rising inflation, but still bond bulls struggled to make anything of it.
"The market reaction to the data has been tepid, perhaps because weakness in June has widely been flagged," said Alan Ruskin, chief economist at 4CAST.
"The 10-year still looks entrenched in the 4.41 percent to 4.5 percent range before CPI, but risks on yield are if anything to the upside," he said, referring to the consumer price index due on Friday.
Early Wednesday, the 10-year note (US10YT=RR) had lost all its initial gains to drop 5/32 in price, lifting its yield to 4.49 percent from 4.47 percent late on Tuesday.
Yields on the two-year note (US2YT=RR) ticked up to 2.59 percent from 2.56 percent. Likewise, five-year yields (US5YT=RR) inched up to 3.68 percent from 3.65 percent, while the 30-year bond (US30YT=RR) hovered around 5.22 percent.
Bonds took some comfort in the weakness of equities (SPU4), which were hit by a disappointing outlook from Intel (NasdaqNM:INTC - News).
Retail sales fell 1.1 percent in June when analysts had looked for a 0.6 percent drop. Excluding autos, a measure considered more meaningful by analysts, sales dropped 0.2 percent compared with forecasts of a 0.2 percent gain.
Sales were revised up for May, somewhat balancing the softness in June. Many in the bond market had also been betting on a weak report and were quick to take profits after the fact.
The data provide more confirmation of how far spending slowed in the second quarter. Having run at an annualized 3.8 percent in the first quarter, analysts now think consumption managed no more than 2.5 percent in the second.
Most economists -- and the Fed itself -- assume spending will pick up again through the second half of the year, in part thanks to healthy growth in disposable incomes.
Still, for the moment there is enough uncertainty about the outlook on the economy to provide support for Treasuries, at least until the next payrolls report is released in early August.
"Our economics team expects June is a temporary setback," said Peter McTeague, Treasury market strategist at RBS Greenwich Capital. "That's where the rate money will be made -- to what degree does Q2 slippage leak into Q3. Probably won't have that answer for another month or two."
Another major uncertainty for the market is inflation and again the outlook is less than certain. Figures on import prices out Wednesday showed a 0.2 percent dip in June, a relief after May's huge 1.4 percent increase.
However, the drop was all due to a fall in petroleum prices and crude oil has since climbed back toward $40 barrel, suggesting that the relief might be short-lived.
Other indices of commodity prices have also been rising in recent days, suggesting investors are becoming more confident that global growth will remain healthy despite any slowing in China.
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