NEW YORK: US Treasury debt prices rose Monday as weaker-than-forecast retail sales growth led to expectations of disappointing second-quarter economic growth and raised bets the Federal Reserve might stick its current rate of bond-purchase stimulus.
The US government said on Monday retail sales increased 0.4 percent last month, half of the rise economists polled by Reuters had forecast. The slowdown led Wall Street to now expect the economy likely expanded at a meager 1 percent clip in the second quarter.
Signs of the consumer sector faltering might be a roadblock on the US central bank's path to begin scaling back its $85 billion monthly purchases of Treasuries and mortgage-backed securities, its third round of quantitative easing known as QE3.
"The retail sales numbers were not very good. People are revising down their GDP outlook. It's going to be difficult for the Fed to taper," said Brian Edmonds, head of rates trading at Cantor Fitzgerald in New York.
Treasuries yields jumped to near two-year highs a week ago since Fed Chairman Ben Bernanke said in June that the US central bank may reduce its bond purchases this year if the economy continues its momentum.
Better-than-expected job growth this spring has bolstered the case for the Fed to reduce its bond purchases, although most US central bankers have reiterated they would like to leave short-term interest rates near zero for a protracted period even after the Fed ends QE3.
"When the Fed is telling you they are data dependent the market lives and dies on every piece of information," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.
Bernanke will have an opportunity to express the Fed's current view on the economy and policy path on Wednesday and Thursday during his semi-annual testimony before Congress.
Bernanke's testimony will be released at 8:30 a.m. EDT (1230 GMT) on Wednesday.
In anticipation of possible surprises in Bernanke's testimony, many traders and investors moved to the sidelines.
As of 2 p.m. EDT, cash trading volume totaled $156 billion, half its 20-day average, according to ICAP, the world's largest inter-dealer broker of US government debt.
Yields on US benchmark 10-year Treasury notes were last up 8/32 in price to yield 2.562 percent, down 3.0 basis points from late on Friday. The yields have increased from around 2.20 percent before Bernanke spoke on June 19 and reached a two-year high of 2.76 percent on July 8.
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