US Treasury yields fell on Thursday after the European Central Bank signalled it will hold rates low for longer than many investors expected. The ECB decided to end its 2.55 trillion euro ($3.02 trillion) bond-purchase program at the close of the year and said interest rates would stay unchanged until the summer of 2019.
As a result, traders pushed back expectations of a rate hike to September 2019, three months later than they had previously anticipated. "It seems that the forward guidance has offset some of the hawkishness of ending QE early," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. "It pushed out market pricing to about September for the first ECB hike."
Benchmark 10-year notes gained 10/32 in price with yields falling to 2.944 percent, from 2.979 percent on Wednesday. Yields briefly rose after the US Commerce Department reported that US retail sales increased more than expected in May. It said retail sales rose 0.8 percent last month, the biggest advance since November 2017. Data for April was revised up to show sales rising 0.4 percent instead of the previously reported 0.2 percent gain.
"Retail sales was extraordinarily strong," said Michael Cloherty, head of US rates strategy at RBC Capital Markets in New York. The data comes a day after the US Federal Reserve raised interest rates as expected, with Fed Chair Jerome Powell stating that "the economy is doing very well." "We've had a solid consumer balance sheet and now we're getting some very strong consumer spending, which highlights what he was saying yesterday about the economic prospects being bright," Cloherty said. The Fed's policymakers also issued fresh economic projections indicating a slightly faster pace of rate increases in the coming months, with two additional hikes expected by the end of this year, compared with one previously.
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