Retail sales gain add fuel to US bond selloff

NEW YORK: A solid rise in US retail sales in April rocked a teetering US Treasuries market on Tuesday as a wave of selling propelled the benchmark 10-year note's yield through a key technical support, sending it to a near seven-year high.

The 10-year yield had hovered around 3 percent since reaching late last month on concerns about rising inflation and a ballooning federal budget gap. On the other hand, trade tension between the United States and other nations and signs of faltering growth in Europe had kept a lid on US yields.

"(Today's) move was pretty violent, but the trading volume was not massive," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. "It looks like a decisive break."

If 10-year yield rises further following the technical breach above 3.05 percent, it would next test the 3.21-3.23 percent area, which it last visited in July 2017, LeBas and other analysts said.

The 10-year Treasury yield on Tuesday reached 3.095 percent, its highest level since July 2011. It was last at 3.076 percent, up 8 basis points, its biggest one-day yield rise since March 2017, Reuters data showed.

Traders unloaded their bond holdings after the US Commerce Department said retail sales rose 0.3 percent last month, matching analyst forecasts. The latest data supported the notion that consumer spending appeared on track to accelerate after slowing sharply in the first quarter.

The two-year yield, which is most sensitive to traders' view on Federal Reserve policy, was up over 3 basis points at 2.581 percent after touching 2.589 percent, the highest since August 2008.

A quicker pace of economic growth in the second quarter will likely allow the Fed to increase key overnight borrowing costs in the coming months, analysts and traders said.

"It's a better start to the second quarter," said Thomas Roth, head of US Treasury trading at MUFG Securities America in New York. "The Fed will likely go again in June."

This view on the next Fed rate increase was reinforced by comments from San Francisco Fed President John Williams and Dallas Fed chief Robert Kaplan at separate public appearances.

However, Williams and Kaplan downplayed the likelihood the central bank is considering a faster pace of rate hikes as productivity remains sluggish and inflation, while firming toward the Fed's 2 percent goal, is not overheating.

Interest rates futures implied traders now saw more than a 50 percent chance the Fed would raise rates three more times by year-end.