NEW YORK: Treasury prices fell on Friday, with 30-year yields on pace for their largest weekly gain since end-June as stronger-than-expected US retail sales lifted stocks and diminished the safe-haven allure of US government debt.
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 the US economy may still be recovering, albeit quite slowly.
The better-than-forecast sales figures emboldened those who are looking for the economy to stave off another recession.
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 early afternoon trading, benchmark 10-year notes were trading 11/32 lower in price to yield 2.22 percent, up 4 basis points from late Thursday.
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 to address the debt crisis at 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 Oct. 23.
Increasing confidence about the euro zone's fiscal problems pushed 30-year bonds down 1-5/32 in early afternoon trading to yield 3.21 percent, up 6 basis points from yields late on Thursday.
The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment sagged to 57.5 from 59.4 the month before. It fell short of the median forecast of 60.2 among economists polled by Reuters and prompted investors to buy back some Treasury positions.
Still despite Friday's slide, analysts expect the flight to quality to resume both from a fundamental and valuation perspective.
"I think the optimism is overdone," said Credit Suisse's Sherman. "We haven't really seen anything tangible out of Europe. There are real issues over there and people are getting way ahead of themselves."
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