NEW YORK: US Treasury yields retreated from recent highs on Wednesday as softer-than-forecast U.S. economic data nibbled away at a growing consensus that Federal Reserve policymakers are readying for an interest rate increase possibly as early as June.
Benchmark 10-year notes were last up 8/32 in price to yield 2.1151 percent, down from 2.143 percent late on Tuesday. Earlier, in overseas trading, the yield stood at a high of 2.164 percent, a level last seen on Jan. 2.
Other maturities also posted price gains, which widened after the government reported that U.S. producer prices in January had their biggest monthly drop in more than five years.
Housing starts fell last month as manufacturing output inched up, according to other newly published data.
"From the Fed perspective, when you get inflation numbers like this, it's harder to move the needle on getting closer to raising rates," said Thomas Simons, money market economist at Jefferies LLC in New York. "It talks against the June hike."
Economists mostly expect the Fed to start raising rates in June, citing rapidly tightening labor market conditions. The Fed has kept its short-term rate near zero since December 2008.
According to CME FedWatch, which tracks Fed funds futures contracts, bets on a June rate hike eased to slightly over 70 percent probability on Wednesday from just over 72 percent on Tuesday.
Trading was little affected by the Greek debt crisis but prices were benefiting from buyers looking for bargains after a sharp selloff in Treasuries, according to Simons.
Treasury prices have been dropping, with yields on 30-year bonds and benchmark 10-year notes climbing on Tuesday to seven-week peaks. Yields on U.S. 7- and 5-year notes also touched their highest levels since early January.
Through Tuesday, the Merrill Treasury index was down 2.55 percent to date in February, putting it on pace for the worst month for Treasury debt since January 2009, when it slid 3.09 percent on a total return basis.
The index has not quite fully retraced all of January's gains, which were the best in six years, but the year-to-date gain for Treasuries is now just 0.26 percent.
Gains on Wednesday were strongest in 30-year bonds , which fell more than two points on Tuesday and on Wednesday were last yielding 2.7079 percent on a price gain of 19/32, according to Thomson Reuters data.
Traders were also focusing on the release at 2 p.m. (1900 GMT) of minutes of a meeting of Fed policymakers last month that may contain hints on rate increases, according to Simons.
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