TREASURIES-Yields up as June U.S. retail sales unexpectedly rise

  • 7/16/2021
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(Adds primary dealer survey, updates prices) By Karen Brettell NEW YORK, July 16 (Reuters) - U.S. Treasury yields pared most of Friday"s gains as doubts about the economic recovery"s strength and dovish Federal Reserve policy were seen as likely to cap yields in the near-term, even after U.S. retail sales unexpectedly rose in June. Demand for goods remained strong even as spending shifts back to services, bolstering expectations that economic growth accelerated in the second quarter. Retail sales rebounded 0.6% last month, the Commerce Department said on Friday. May"s sales decline was revised to 1.7% from the previously reported 1.3%. The data was "a little better," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York. However, yields are holding near last week"s lows and "we"re sort of just sitting nowhere now." Yields have dropped since Federal Reserve Chair Jerome Powell on Wednesday and Thursday pledged "powerful support" to complete the U.S. economic recovery, and indicated he saw no need to rush withdrawing economic support because of a recent jump in inflation. "I think most people expected higher yields at this point, just given the economy"s reopening ... but Powell"s fairly dovish, so it"s really hard to. It doesn"t feel like it"s ready to really go back to the year-to-date high yields," Lederer said. Benchmark 10-year notes gained half a basis point on the day to 1.302%. They are holding just above last week"s five-month lows of 1.250% and are down from 1.776% in March. The yield curve between two-year and 10-year notes was little changed on the day at 107 basis points. An uptick in coronavirus cases tied to the Delta variant have added to concerns about economic strength after Los Angeles County said on Thursday it would reimpose its mask mandate this weekend. The yield curve has flattened in recent weeks as investors prepare for the economic boom from business reopenings to fade, and on concerns that eventual Fed tightening will dampen inflation and slow growth. Some analysts say long-dated yields may be too low relative to expected growth. "The current level of Treasury yields imply a relatively pessimistic growth outlook: the current level of yields would be justified if we lowered our growth forecasts by nearly 3 percentage points, implying just 0.5% real growth over the next year," JPMorgan analysts said in a report late on Thursday. "We think these concerns are overstated, but other recent episodes indicate this gap is unlikely to close quickly." The U.S. Treasury Department on Friday asked its primary bond dealers for their outlook on issuance sizes across the yield curve and when reductions should be considered by the government. The dealer questionnaire, released on Friday, starts the process for the Treasury"s next quarterly debt refunding announcement in August. July 16 Friday 3:03PM New York / 1903 GMT Price Current Net Yield % Change (bps) Three-month bills 0.045 0.0456 -0.002 Six-month bills 0.05 0.0507 0.000 Two-year note 99-205/256 0.2275 0.003 Three-year note 99-212/256 0.4329 0.000 Five-year note 100-116/256 0.7815 0.007 Seven-year note 101-46/256 1.0733 0.005 10-year note 102-248/256 1.302 0.005 20-year bond 106-120/256 1.8583 0.014 30-year bond 110-4/256 1.9316 0.013 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 0.00 spread U.S. 3-year dollar swap 10.00 0.50 spread U.S. 5-year dollar swap 7.75 0.00 spread U.S. 10-year dollar swap -1.50 0.00 spread U.S. 30-year dollar swap -30.00 -0.50 spread (Editing by Nick Zieminski and Richard Chang)

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