Yields drop as retail sales miss expectations

NEW YORK: US Treasury yields fell on Tuesday after data showed that retail sales rose in March at a slower pace than expected, adding to bets the Federal Reserve is unlikely to increase interest rates in June.

The Commerce Department said retail sales increased 0.9 percent. Economists polled by Reuters forecast retail sales rebounding 1 percent.

"It's lower than consensus," said Sean Murphy, a Treasuries trader at Societe Generale in New York. "This is slightly helping to confirm that June might be a little bit too early."

Weaker-than-expected jobs growth in March and more dovish minutes from the Fed's March meeting have boosted expectations that the US central bank will wait longer before raising interest rates. Until the recent spate of weakening data, some investors thought a rate increase in June was likely.

"With the number today, coupled with the weaker employment number that we got at the beginning of the month and still-contained inflation, the Fed isn't going to be in a hurry," said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle.

Other data on Tuesday showed that US producer prices rose in March. The Labor Department said its producer price index for final demand increased 0.2 percent last month.

Benchmark 10-year notes were last up 16/32 in price to yield 1.87 percent, down from 1.94 percent late Monday.

The next major release will be consumer price inflation data on Friday.

"That will be important because the Fed always cares most about what the consumer pays, not what wholesalers pay," said Hurley.

Inflation is running below the Fed's 2 percent target, which is seen as complicating the US central bank's ability to raise rates.

Concerns over the debt standoff between Greece and the European Union also added a safety bid for US bonds and helped send German government bond yields to record lows.

German 10-year note yields dropped to a low of 0.13 percent. Bond purchases by the European Central Bank and fears about Greece have boosted the debt, even as the markets grapple with a heavy week of supply.

Slowing international growth and geopolitical uncertainties are among other factors seen holding back the US central bank from raising rates in the near term.