Treasury's 30-year yields post best weekly gain in a year

Treasury prices fell on Friday, with 30-year yields posting their largest weekly gain in a year, as stronger-than-expected US retail sales lifted stocks and diminished the safe-haven allure of US government debt. Benchmark 10-year note yields, meanwhile, rose for a third straight week, their best three-week advance since late December last year.
Treasuries, however, trimmed their losses earlier after data from Thomson Reuters/University of Michigan's survey showed consumer sentiment slumped unexpectedly in October. A perception that Europe was taking aggressive steps to stem its debt crisis, as Europe's finance ministers prepare to meet counterparts from the Group of 20 nations, also served to undermine the safety appeal of Treasuries.
"This is a reflection of the positive data on retail sales and that was enough to increase risk tolerance," said Scott Sherman, interest rate strategist at Credit Suisse in New York. "So risk-free assets (such as Treasuries) are suffering a little bit." US retail sales rebounded in September at the fastest pace in seven months, rising 1.1 percent from August and adding to recent evidence that the economy may still be recovering, albeit quite slowly.
In line with the better-than-forecast sales figures, some banks have upgraded their outlook on the US economy. Barclays Capital, for instance, has raised its US gross domestic product growth forecast to 2.5 percent for the third quarter from a previous estimate of 2.0 percent. In late afternoon trading, benchmark 10-year notes were down 18/32 in price to yield 2.25 percent, up six basis points from late Thursday.
US government yields came off their highs in afternoon trading after a Treasury Department report showed the budget deficit for September widened in fiscal 2011, with the annual gap staying above $1 trillion for a third straight year. Still, optimism that Europe would be able to contain its debt crisis has made for tough times in the Treasuries market of late.
Group of 20 finance ministers and central bank governors began a two-day meeting in Paris on Friday, a day after the euro zone's 17 member nations completed their approval of an expansion of the region's bailout fund. Although investors do not expect a comprehensive strategy on the debt crisis to come out of the weekend meeting, they hope it will provide an opportunity for officials to agree on the outlines of a plan in time for a European Union summit on October 23.
Increasing confidence about the eurozone's fiscal problems pushed 30-year bonds down 1-18/32 in late trading to yield 3.23 percent, up eight basis points from yields late on Thursday. "I think the catalyst to higher rates at this point is whether we actually get some sort of plan from Europe to do some kind of a bank re-capitalisation," said Bob Auwaerter, head of Vanguard Fixed Income Group in Malvern, Pennsylvania, who oversees $560 billion in assets.