Yields rise as US retail sales beat expectations

NEW YORK: US Treasuries weakened on Thursday and the yield curve neared its flattest in six years after data showed US consumer spending advanced at a faster pace than expected in November.

Stock market gains also reduced safety buying of US debt while banks and investors prepared for an auction of $13 billion in 30-year bonds.

The Commerce Department said retail sales, excluding automobiles, gasoline, building materials and food services, increased 0.6 percent last month after an unrevised 0.5 percent rise in October. Lower gasoline prices gave the holiday shopping season a boost.

Retail sales is the last major indicator before next week's highly anticipated Federal Reserve meeting, when many investors expect that the US central bank may change its vow to keep interest rates near zero for a "considerable time."

"It's the last piece of reliable data in front of the Fed," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. He noted that intermediate-dated debt, the most sensitive to interest rate increases, took the brunt of the weakness.

Three-year notes fell 4/32 in price to yield 1.06 percent, up from 1.02 percent late on Wednesday. Five-year notes dropped 7/32 in price to yield 1.61 percent, up from 1.57 percent.

Benchmark 10-year notes fell 9/32 in price to yield 2.20 percent, up from 2.17 percent, and 30-year bonds were off 14/32 in price to yield 2.86 percent, up from 2.84 percent.

Inflation may also be a focus as the Fed currently projects far higher inflation than market expectations, Vogel said.

Brent oil resumed its downward move on Thursday, falling to near $64 a barrel and within sight of a five-year low, pressured by signs that already ample supply will be even more plentiful in 2015.

Treasuries have gained this week as concerns about slowing global growth added a safety bid to the debt, even as growing US economic momentum increased speculation the Fed was closer to increasing interest rates next year.

A hunt for higher yields has also led investors to reach out to longer-dated Treasuries, with few alternatives for high-quality bonds. That may help the government sell $13 billion in a 30-year reopening later Thursday, the final sale of $59 billion in new supply this week.